JPM Revisited

Back in May I did something I usually don’t do. I let folks watch a specific ‘stock trade in progress’. Why I don’t do it ought to be pretty clear. First off, I got a lot of snark and kibitzing. That can lead to emotional states that leads to bad trades. Fundamental rule of trading is be dispassionate.

Second, if some money bags wanted to ‘game my position’, it makes it just so easy…

At any rate, as a reminder, the posting is here:

https://chiefio.wordpress.com/2012/05/11/frugal-friday/

I opened a position in JPM as they were falling on terrible news. I did it in a complicated way, some of which I’ll gloss over here. The upshot of it all was that I exited part of the position (the ‘day trade’ or ‘couple of day trade’ part) at about a wash (tiny loss) while keeping the longer term “expected swing trade” portion for longer term gain. My “buy price” was $34.70 at that time for a few hundred shares. This looks like a good time to revisit that position and think about it, as it is at $48.79 for a gain of $14 / share. Don’t want to get piggy ;-)

Here’s the chart today:

JPM 5 Feb 2013

JPM 5 Feb 2013

This graph has all the markings of continued rise. The price is in a pretty steady ‘lower left to upper right’ and price is nicely stacked above the SMA lines. (Too nice… I’ll likely sell down a bit and expect to buy back on the next ‘dip’ to the SMA stack. At a minimum, protect with puts or a stop loss sell order). RSI is up ‘near 80′, but in that 50/80/50/80 oscillation of steady climbing good companies. MACD is doing a ‘steady weave sideways’ of a steady riser too. (But the time to buy is when one of them takes a dip back down…) ADX is well over 40 and not yet inflected down, while we have “Blue on top” DMI+ of 30. Saying continued strong run.

The only thing wrong with this chart is how good it looks…

PE is now up to 9, and the dividend is down to 2.46% per BigCharts. Still, not bad.

What will I do? Probably thin the position a bit, put in stop loss on the rest (or buy puts depending on how low volatility is) and then put it on a watch to buy more on the next ‘dip’ to the bottom of the SMA stack.

Let it run as long as the market feeds it, but start preparing the automatic exit.

Gotta say, for all the tension up front, this is ending up looking like a textbook trade. I could complain that my “buy” point was $3 off the absolute bottom, that I could have had even more gain had I not rabbited out of the day trade part so fast, that I ought to have done a trailing ‘buy if touched’ to get bought into more on the proven up run. Woulda, coulda, shoulda…

Or I can just enjoy “almost at the bottom” buy and selling “after a good run up”… ;-)

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics, Trading, and Money and tagged , . Bookmark the permalink.

18 Responses to JPM Revisited

  1. BobN says:

    Bavo – Well done!

    I keep expecting the market to tank and it keeps going up. I might be the perfect contrarion.

  2. E.M.Smith says:

    @BobN:

    Thanks!

    I’m still learning not to ‘expect at’ the market. Generally my ‘rule’ is that a trend in motion tends to stay in motion until confirmed broken. This is right about 3 out of 4 times (as that’s about how many ‘dips’ there are before a run up turns into a ‘tank’…)

    So price has to cross the SMA stack, approach from the other side, and fail to penetrate, then, and only then, is a new ‘trend’ confirmed. In a ‘crash’, the ‘return to the SMA stack can be very abbreviated to non-existent. So look at JPM above. It’s rising at the start, then about May 10th it has punched through the SMA stack. In this particular case the ‘news flow’ was marginal. Then the “Aw Shit” news hit and the price plunged. My ‘trade rules’ would have had a stop loss before the crash. See those little red dots of the PSAR? That’s the stop loss setting.

    Now compare Nov. Price also rolls down to touch the bottom SMA line. April 1 has a much more clear MACD crossover (so more likely a shift to down trend) while Nov 1 MACD is ‘muddling sideways and giving ambiguous ‘be out’ indications. By May 1 the first turn has a DMI/ADX with red strongly on top. By Dec DMI+/- is more weaving than separated and ADX is weak. So weak ‘reversal downside’. So at the point where DMI goes to blue on top and MACD is back to going above zero in Dec, it’s looking a lot like a ‘buy the dip’. Back in early May the DMI red on top and MAC continuing to decay makes it more a ‘wait for it’ and then the drop…

    So you can try to ‘tune’ the quality of such a pause into “top” vs “dip”, but it’s a bit dicey. It is also much more likely to be a ‘top’ when you’ve had a couple of ‘dips’ already, and more likely to be a ‘dip’ when recovering from a drop. All in all, the odds being ‘more likely a dip’ until shown otherwise makes the odds say “buy the dip” and use stop loss orders to fix the mistakes.

  3. Jim Radig says:

    Nice outcome EM. It’s very interesting having you share your knowlege of trading. Watching what you do makes me think, ” I could do that.” Which means I probably know just enough to be dangerous. (Kind of like a first year law student.)

    I’m wondering, have any of your previous posts listed any good reading sources for someone looking to better understand the indices you use to guide your decisions? If not, would you consider recommending any?

  4. Verity Jones says:

    Good trading. Since talking to you about trading a while back I’ve often looked at a company I learned a bit about (without having any ‘insider’ knowledge). At the time, after the 2008 recession crash, they were on the rise at just over 3, but I chickened out of investing as I would only have invested a modest sum anyway and was so ignorant of the process. They peaked at 8 in 2010 but have since slid back. If I had taken the plunge and not stayed with it for too long I might have come out rather well. Maybe sometime I’ll invest the time to learn about it more seriously.

  5. DirkH says:

    Jim Radig says:
    6 February 2013 at 6:16 am
    “Nice outcome EM. It’s very interesting having you share your knowlege of trading. Watching what you do makes me think, ” I could do that.” Which means I probably know just enough to be dangerous. (Kind of like a first year law student.) ”

    The market has a natural tendency to violate expectations. When everyone uses MACD it stops working (for obvious reasons; there’s no free money for all).

    Over the last years I saw more “flash crashes” where a single stock drops 10% and recovers nearly instantly. I think this is used by big traders to shake people out of their stocks (momentarily dropping under their stop losses). It’s been recommended to always set a stop loss… I don’t do that anymore to not lose winning stocks through those instant shakedowns. I do run a higher risk this way and try to offset it by diversification.

    The market changes with the behaviour of the participants.

  6. E.M.Smith says:

    @Jim Radig:

    In each WSW posting there are links to ‘background’ pages that explain things a bit:

    https://chiefio.wordpress.com/2009/03/15/indicators/

    https://chiefio.wordpress.com/2009/06/03/choosing-a-stock-entry-point/

    How trading is different from longer term investing:
    https://chiefio.wordpress.com/2011/06/12/lti-long-term-investing/

    @Verity:

    It’s only money, and you don’t get out of this life alive anyway, might as well enjoy it ;-)

    @Both:

    The standard advice is to ‘paper trade’ a while and see if you win or lose. Just pretend to trade and keep track of what happens. I don’t find that “interesting” enough, so tend to do actual trades to “learn”.

    The market is a great teacher (and only sometimes an expensive one…) For example, I’ve learned that my greatest fault is boredom. I just get tired of looking at the JPM chart every day (and for trading it must be every day) and then find I “forgot” for a week or two and get to play ‘catch up’ with what I ought to have been doing…

    @DirkH:

    Some years back ( a decade now?) they ‘loosened the rules’ on some things (like removing the uptick rule on shorting) and it became more of a challenge. I had to adapt my style.

    One of the things tossed was the “standing stop loss order”. I now keep a ‘mental stop loss’ only executing it manually. For just the “market manipulation” reasons you gave.

    Also, I am much more likely now to use ETFs as trade vehicles than individual stocks (and tend to much larger stocks that are less easily manipulated). So for SPY to have a ‘flash dip’ requires 500 market specialists to all do the same thing… much harder to make happen.

    Per indicators changing: To prevent ‘fad driven action’ on indicators, I use a set of 3 to 6 of them, and I pay some attention to the “news flow”. It is all used to paint a mental picture of “what is happening with this ticker?”. MACD is a modestly strong trend indicator. I use ADX to tell me ‘how strong is the trend’, and then use MACD if above 25 ADX, and for below 20 I use Slow Stochastic (that is in fact a fast trade indicator). Between 20 and 25 ADX it is a coin toss as to which one, so I estimate trend direction and use the one ‘in that direction’. Volume and Volatility also set some context. Are things picking up or slowing down? Finally, RSI tells me when emotional state is reaching an extreme and unlikely to go further.

    By blending all those, the failings of any one tends to get “averaged out”.

    @Any Newbies and Wannabees:

    It looks easier than it is; but it isn’t hard. Learn the indicators and how to read them. Start with a widely traded ETF ( like SPY or RUT ) and then practice. Eventually moving out to ‘harder bits’ like individual large stocks, metals funds, foreign stocks, etc. The lower the volume the more likely there will be ‘quirks’ and what looks like price swings done by market makers to ‘game’ folks ( like clearing out stop loss orders). The overall market even reflects some of that ( often called ‘price discovery’). So every morning the first 1/2 hour tends to be market makers and Big Money swinging the prices back and forth to get an idea who is doing what. After a long weekend, prices tend to go down more as they pick up some inventory from stop loss orders. Before a big weekend, they will run up prices and sell out toward the end of the day (often with a final ‘swoon’ in the last half hour.) Best time to buy tends to be at the bottom of that opening swing ( IFF you can guess how far it will go) or about mid morning. Best time to sell tends to be about 1 hour to 1/2 hour before market close on up days.

    No, not a hard rule, more a 60% kind of thing. But enough to watch for it. So learn that “mood of the traders” and get in sync with it. Take Volume. Just dries up on holiday weeks. Bigger the holiday, the more it dries up. Volume based indicators are prone to error between December 20 and Jan 3. The “Third Friday” tends to be volatile due to options expiration. About every quarter the Big Players (like Goldman Sachs) change “theme”. Usually right AFTER all their options contracts roll over. So watch for ‘sea change’ after options expiration. (Why I tend to have a WSW posting at those odd ’20 something’ day dates…) Many folks have once a month payroll deductions that buy funds at ‘end of month’. So the first 3 days of the month tend to be higher and rising. A cynic might think market makers run it up just before that big flood of new money… while a competitive theorist would say they were just buying inventory to serve their market… Me? I just remember to be more a seller at the start of a month and more a buyer near the middle… (though only if the charts confirm it…)

    But everyone has some faults, and you will find yours. If nervous, you will sell winning positions at the first quaver, and miss a long run. If slothful, you will find that you ought to have sold 2 weeks ago but were busy watching football and now have 2 weeks of loss to make up… somehow. If orderly and methodical, you will find the “machine traders” periodically gaming you with ‘flash dips’ wiping out your mechanical stop loss orders… etc. etc. So I have a flexible adaptive and manually driven trade plan. My fault is sloth… and I tend to not check as often as I ought…. It is also the case that what is a clear chart pattern gets more, um, murky at the right hand edge of the chart…

    Hope that helps some…

  7. DirkH says:

    E.M.Smith says:
    6 February 2013 at 3:21 pm
    “One of the things tossed was the “standing stop loss order”. I now keep a ‘mental stop loss’ only executing it manually. For just the “market manipulation” reasons you gave.”

    Ok, that’s smart. For the newbies: DEFINE YOUR EXIT CRITERION before you get into a trade. What do you hope to achieve and which criterion will you use for successful exit; which criterion will you use to get out without success but with affordable losses? You have an idea how that stock will develop; if it doesn’t work out, how will you recognize and act on it.

    “Also, I am much more likely now to use ETFs as trade vehicles than individual stocks (and tend to much larger stocks that are less easily manipulated).”

    Smart idea. Made most of my gains the last 4 months with SDAX and MDAX stocks; wildly variable results. Gotta check whether I managed to beat the indices. Maybe buying according ETF’s would have been less risky and equally gainful.

    (I am rotating into a Gold ETF right now and will stay there til October. My model wants it that way. You have been warned. I train it on US and German stocks.)

  8. Zeke says:

    DirkH says: “DEFINE YOUR EXIT CRITERION before you get into a trade. What do you hope to achieve and which criterion will you use for successful exit;”

    With all of these Progressive scientists and activists remaking energy markets around, this is my exit criterion:

    Irene
    start to 1 min 40 seconds

  9. adolfogiurfa says:

    @Zeke…LOL!, if you identify yourself with that lady…you are bloody dangerous!

  10. adolfogiurfa says:

    @DirkH I am rotating into a Gold ETF right now and will stay there til October …Don´t you know that metallic gold is, at best, 1/100th of the sold gold? …and…October? That´s too far away, after WWIII and the economic collapse.
    Buy more popcorn!

  11. E.M.Smith says:

    @Adolfo:

    Um, an ETF is a fund which means it is a paper vehicle… used for trades, not ‘end of the world’. It doesn’t really matter what is in it, as long as the trading is in keeping with the index…

    OH, and I really like “that Lady”… does that make me dangerous too? ;-)

    @DirkH:

    I’m getting early indicates of ‘top near’ and moved some of my positions into metals yesterday. (Mixed basket including some industrial and some LENR related and some precious).

    Just an early ‘knee twitch’ and I need to do my more formal analysis before making it a commitment…

    We have another round of “Budget Farce Redeaux” coming… So with two very bad choices:

    1) Raise Debt Limit longer term.
    2) Enforce Debt Limit.

    Our congress has found the worst possible behaviour and is doing that instead:

    3) Repeatedly raise the limit just a little and do it again and again and again and again and…

  12. BobN says:

    For those looking for hedges with options, there are ETFs that are 2x or 3x volatility. Big reward, but bigger losses. If you have really strong beliefs on a particular movement such as oil or gold you might look at the higher risk options.
    Note: There was a huge buy of puts 10,000 options just recently against banks. This is a huge volume spike, so someone with big money is betting big.
    Another option was an 11 million buy against the VIX increasing. That’s some serious money.

    Like everything in investments, its two data points, so judge accordingly.

  13. DirkH says:

    adolfogiurfa says:
    6 February 2013 at 11:44 pm
    “@DirkH I am rotating into a Gold ETF right now and will stay there til October …Don´t you know that metallic gold is, at best, 1/100th of the sold gold? ”

    Doesn’t matter. The value of my deposit is tied to the price of Gold. The price of Gold has a 0.96 correlation with M2. M2 will rise. So, I’m expecting 13% gain priced in EUR over the next 8 months. That’s the average of what happened in that period of 8 months in the last 3 years.

    “…and…October? That´s too far away, after WWIII and the economic collapse.
    Buy more popcorn!”

    WW III / economic collapse: That’s a similar case of alarmism as exaggerated fear of Global Warming is. Yes there will be wars. Yes there will be collapses. Global and catastrophic? no.
    Actually I’m banking on a sort-of collapse in the next 8 months. You know, the EU drags itself from heart attack to heart attack. That would make my day. In such cases, stock markets and Gold are negatively correlated.

  14. adolfogiurfa says:

    @DirkH Heart attacks?…A walking zombie?

  15. DirkH says:

    adolfogiurfa says:
    8 February 2013 at 12:41 pm
    “@DirkH Heart attacks?…A walking zombie?”

    Not all heart attacks are deadly. More like a critically ill patient who is in urgent need of some serious surgery but who refuses to go to the doctor.

    Medieval reports of heart attacks are interesting; they say things like “an invisible fist pushed him to the ground”; people were blaming it on evil spirits or the wrath of god…

  16. adolfogiurfa says:

    @DirkH LOL! people were blaming it on evil spirits….coming out from some NY tombs in WS?

  17. DirkH says:

    adolfogiurfa says:
    8 February 2013 at 12:59 pm
    “@DirkH LOL! people were blaming it on evil spirits….coming out from some NY tombs in WS?”

    The ongoing collapse / disintegration of the EU is a self-inflicted disaster. Without the BFC it would still have cracked, only a little later. Diminishing returns, credit bubble (construction / consumption boom in the PIIGS)… Bubbles just blow up until SOMETHING pops them… In this case it was the sub prime crisis but it could have been anything else.

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