I got an email yesterday from someone who just pissed away roughly $400. They bought out of the money call options on a stock that’s headed in the opposite direction. For less than 400 bucks you could buy my IPO course, purchase 3-months of my daily trading service (I’m having a one day sale to make this paragraph work, renews at reduced rate for as long as you stay on the service), or the entire archive of my week in charts (NOW FREE! CLICK HERE) —hundreds of hours education. I would think, in time, this knowledge would pay for itself multi-fold. If I truly didn’t believe that, then I might as well dissolve my education business.
So big Dave, what makes you think he “pissed away” his money? Well, for him to profit the stock will not only have to stop going down but it will have to start going up. And, it will have to go up by a significant amount during a limited period of time. There’s a reason why the options are “cheap.”
Okay, so what if the miracle happens? Well, that will be the most expensive lesson ever for this gentleman. My father-in-law played the Lottery many years ago and won. Well, he got like 5 out of 6 but you get the picture. Unfortunately, a bunch of other people got lucky too. It only paid a grand, but back then, a grand actually meant something.
He’s played the lottery every week since. I can all but guarantee that he’s spent all of those winnings and then some over the years.
Back to dumb things, I see some plopping down nearly 10k on 100 shares of Alibaba (BABA). It’s amazes me that people would do this but they won’t spend less than $400 to get educated.
From a selfish standpoint, my educational business is a constant reminder of what not to do. Now that the market is cracking, I’m seeing a lot of hope out there. I’m getting calls about what to do about positions that have long since stopped out.
Like I said recently, you have to be a tyrant when it comes to managing the “employees” in your portfolio. When they violate company policy by under performing, you cut them free and say “I got one less problem without ya.” If you’re like me, you still have 99 problems but “this bitch ain’t one.”
Okay Chief Orman, are you ever going to talk about the markets?
Oh yeah, it’s ugly. As I preach, you take things one day at a time. If the market strings together bad days then it might be a downtrend or rolling over. Conversely, if the market strings together a series of up days then it is headed higher. And, if good days are mixed with bad days then it might just be choppy.
Well, lately, the market has been putting in more bad days than good.
Looking to the scoreboard, it wasn’t pretty. The Ps got clipped 1 1/3rd%. The Quack (Nasdaq) lost over 1 ½%. And, the Rusty (IWM) lost nearly 1 ½%.
There’s nothing magical about moving averages but they can alert you to a loss of momentum and keep you on the right side of a market. The Bowtie moving averages (10sma,20ema,30ema—see my YouTube video) in Ps (S&P 500) are on the cusp of crossing over. When this happens from all-time highs it usually pays to pay attention. This is especially true when prior signals didn’t trigger/pan out. It’s the old “the early bird gets the worm but the second mouse gets the cheese” adage. Years ago I knew someone who had a shop full of traders. He told me that he only lets the new guys take second signals until they get their feet wet. Now, you’ll miss a lot of winners doing this but you’ll also miss a heck of a lot of losing trades too but I digress. It’s a good thing I named this column “Random Thoughts.”
The Quack is also on the cusp of forming a Bowtie down. In this case it’s not all time highs but it is off of 14 year highs—which is plenty enough to be significant.
The Rusty Bowtied down a long time ago (July). It is now probing the bottom of it’s long-term wide and loose base. If this breaks, it could get pretty ugly fast.
There’s not enough time to cover how bad the sector action is—I’ll save that for the chart show today. Just know that many that recently were at new highs have turned down. And, many others have rolled over or are already in downtrends-nearly 70% of the sectors that I follow have Bowties in downtrend proper order.
Okay Big Dave, it sounds like you’re ringing the proverbial market top bell (see 09/25/14 Random Thoughts). So what do we do? Well, it’s ugly. Have I said that yet? Now’s the time to do what we always do when things get a little “iffy.” Be selective and honor your stops. That’s about it. Never forget that he who fights and runs away lives to fight another day. I’d like to see you survive longer-term. I’d like to see more than just my mom read my column.
Best of luck with your trading today!
P.S. Chart show today! Call in sick if you have to–it’s going to be a good one! Promise!
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