Is That a VIX on Your Chart...Or Are You Happy To See Me?
Thursday, July 26, 2007 at 12:38PM 
The market moves over 2%. Was it a direction that made you money? Check out the action on the VIX today. We tackled some pretty significant territory during the day, but check out what we have done on the longer term chart....
Take a look at the significance of the action we saw in the VIX on the longer term chart. Notice how we are rapidly approaching a historical mean. A break into the mid 20's here makes this a whole new ball game. This is my reasoning for moving into more spread trades. Even though I am not totally fond of the strategy, the market is pricing in a lot more risk than it has in the past. Plus, with credit policies tightening all over, it's going to be tough to finance your options, unless you sell options to reduce your costs.Speaking of tightening credit policies, the market is finally starting to feel the impact of the sub-prime and housing disasters. Bad news is, it isn't getting any better. Have you looked at the Homebuilder ETF?
This is a major breakdown. There is not a bid for these stocks in sight, and like we've been discussing, don't be surprised to see some bankruptcies in this group. Make sure you are getting in on this action if you missed this idea from earlier in the week. Finally, the bottom that we called in the Yen was uncanny. Use this ETF as a measurement of liquidity... if the Yen strengthens, stocks head lower. Better yet, use this as a hedge against a market correction.
Since I am here at 9 p.m. at night, the global markets are pricing in the panic that was seen in US markets, take a look at the Hang Seng...
Make sure you understand what is going on here. There is a change going on in this market. As indicated by the VIX, a change is expected, but there is no telling how little or how much. Don't be a hero here, or emotionally charged to do something you shouldn't. Most of the readers here have only experienced a bull market. Don't expect the market to do what it is that you are used to. Put yourself in a position where you can be profitable regardless (diversify).
This post has focused on the negatives, but the major positive here is that earnings are still strong. According to corporate profits, the market is trading at a discount. However, rather than to run out there to try and catch a falling knife, play defensively and keep your stops tight. Let things cool off perhaps before trying to buy things "on sale."
Even though days like this are typically a downer (for the sake of others), I am pretty happy with the e-mails that I am getting. Most traders are pretty well diversified from the ideas I have pitched, and the majority made money today. On the other hand, it is times like this where the market has caught some of us doing something we shouldn't have been doing. Perhaps we were overtrading? Not properly positioned, too much exposure, risk, etc. It is times like this where a lot of traders drop out or decide that trading isn't for them. I understand why, because I have been faced with that choice a number of times in my career.
Trading will have ups and downs, high points and low points, and profits and losses. Just know that becoming a successful trader is something that can be accomplished, but it won't happen overnight. If you have a strong desire to do this, know that it is possible. I have been given some great tools (Marketcast, Mastertalk, etc) and have been able to slowly make a correction and major changes to how and what people are learning about trading. If you feel like you still are not there yet, stick with me. If you've read this blog long enough, you see that differences are made, people graduate, and are getting better at this everyday. You can too, if it is something you really want to do.
This post has focused on the negatives, but the major positive here is that earnings are still strong. According to corporate profits, the market is trading at a discount. However, rather than to run out there to try and catch a falling knife, play defensively and keep your stops tight. Let things cool off perhaps before trying to buy things "on sale."
Even though days like this are typically a downer (for the sake of others), I am pretty happy with the e-mails that I am getting. Most traders are pretty well diversified from the ideas I have pitched, and the majority made money today. On the other hand, it is times like this where the market has caught some of us doing something we shouldn't have been doing. Perhaps we were overtrading? Not properly positioned, too much exposure, risk, etc. It is times like this where a lot of traders drop out or decide that trading isn't for them. I understand why, because I have been faced with that choice a number of times in my career.
Trading will have ups and downs, high points and low points, and profits and losses. Just know that becoming a successful trader is something that can be accomplished, but it won't happen overnight. If you have a strong desire to do this, know that it is possible. I have been given some great tools (Marketcast, Mastertalk, etc) and have been able to slowly make a correction and major changes to how and what people are learning about trading. If you feel like you still are not there yet, stick with me. If you've read this blog long enough, you see that differences are made, people graduate, and are getting better at this everyday. You can too, if it is something you really want to do.
I'm spent. See you tomorrow.
Reader Comments (99)
Wouldn't have done it without your advice and trading guidelines Jeff.
Appreciate everything your doing, for me, and everyone else.
I am only 19 years old...
Even though I did a few stupid things today (on purpose) my portfolio is still up. So, even though I've lost money recently it was unrealized gains and overall I'm still up from the initial money we put into our account (though not by much). So, it could be a lot worse and if it wasn't for all that you do with IT and here on this blog (along with all the other option addicts) I wouldn't be in this great position right now. Though, at the moment I feel like I'm going to be taking another crash course through market craziness but I'm strapped in and ready for the ride. I just hope I don't throw up first. ;-)
Thanks again. And thanks for the re-recording of Master's Talk. I realized some more about my trading and some things I definitely need to correct.
liz
thanks for the advice Dave...i reread my post and noticed i wrote calls....it should have said call....i am only in it for $210....i thought it was worth the gamble.....if i lose it all, i will consider it a night out on the town.
Bob....will you send jeff a pic of these cabinets ??? so we can all see your handy work....i would like to see them (or send me a pic, if you still have my email address)
congrats to all who made some bank today (esp to the 19 yr old who has no name, great job!!)....i did not, but i am still up for the month....i feel like i owe a big thank you to this blog, my trading has came a long long way since feb 27th.....the one major bummer is if i would not have held COL, CRDN, and ESRX over earnings i would have been up about 6% today.....i guess i should have asked jeff and eric if i should hold over earnings.....
hey maybe the 19 yr old is the phantom poet.....hhmmmmm
where is C2???
In the past, I would have paniced and sold at the absolute wrong time. I am much better at looking at the whole picture and following trading rules that I am still working on.
Thanks so much,
Kelly
I just almost POOPED my pants!!!
Seriously....Investools sight says TOL up $27.46 after hrs and CNX up $20.58 for the day !!! i think i saw stars for a minute...then i remembered someone earlier said IT was not working....thank you yahoo finance
They really need to get there act together....that could give someone a stroke, esp after aday like today....
ok it is 12:30, time to go to bed...have a good day tomorrow....i will check in tomorrow night (i hope michelle comes back)
Thanks for showing us your charts. I look at these charts every day ... and I don't see what you do ... but I'm getting better. I can't believe I just looked at the VIX and didn't see it!
Thanks to you, the blog, and the Marketcast I can sleep tonight.
L3
Great post and a needed pep talk. I was actually up today but mainly because I closed out a number of trades in the prior 2 days. I had Crox and LEN which kept me in the pink. I closed my other trades for 2 reasons. One, your prior posts were suggesting caution and...I was going on vacation. So, I did well today for reasons that do not reflect on my skills as a trader. I needed some down time and because of that, I benefited. Go figure!! I truly value this blog, and value your input. My thoughts are with Michelle and I know it must be hard for you to lose a fellow blogster but my guess is she will find a way back if you are still willing to provide this format. Jeff, please do what you do to keep us engaged. I think that many of us would have quit trading without this venue. I know that I would have. You know how to pay it forward. It will come back to you and your family.
The anonymous 19 year old and C2 are not the Phantom Poet because It is I.
Thanks as always,
Judd
If you end up reading this first... I wrote you on the last thread close to the end.
Okay, I'm going to take a moment. All the kids are finally asleep. And today was exhausting. I was even distracted during kick boxing. Anyway, I hope you all have a great night. Talk to you all tomorrow.
liz
Thank you so much for re-recording the MT session. I listened to it just now each time you go over exits, I 'get it' a little more. I'm still working on taking smaller and smaller losses which has been a big problem for me in the past.
Your commitment to helping us become better traders is awesome and so appreciated.
Just found time to read your post.
Invaluable lesson. And amidst the time you spend trading and researching all day long (it IS MORE than a full time job in terms of emotion and energy drain), you still find time to share both your wisdom and your emotion with us.
It is very much appreciated buddy.
Thanks for taking the time and effort to share some of your lessons learned with us. It really is appreciated.
Jeff
Thanks for all you do for us. You have done an awesome job of helping to build a community of great people on their way to becoming good traders. Your advice and commitment to helping us are a sign of a man with great character.
Now it's time to roll up the sleeves, be smart and protect the money first and maybe make a little second.
Scoot
You asked in the last post about why some of us held onto DECK. I thought I'd answer it because it's a good question, and a follow up to the email that I sent Jeff which he posted here a couple of weeks ago.
I entered DECK on 6/7/07 with an ITM Sept 80 Call. I only bought one because it fell within my money management rules which are to not enter a position greater than 2% of my account.
Of course I'd been in previously for a great gain, so my YTD gains could afford a small loss on this to see if it broke longer term support at 95. Technically, I stayed in because in the last two days with the market as down as it's been, there has been late-in-he-day buying in DECK pushing it to or above it's area of support. If you draw horizontal lines, each close on each down day was near an area of support.
Now, the rules I use are pretty simple. I'm not over-invested, so I don't have much to lose, and the candles are telling me a story.
Honestly, i didn't know earnings were last night, and the bump up this morning is a pleasant surprise. Keeping track of earnings was too much for me to do, so I've made my system as stupid-proof as possible for me. If I'm not risking much, I can't lose much, and if I take a longer term approach I can be patient through some movement down.
Now what I'm looking for is a lower high. If I get one, I'm out. As long as we stay in an uptrend, I'm in.
PCAR, though is a different story. I saw it drop like a rock through support and I exited at the end of the day because i waited, but I had been in it since March 29th, and it was an AUG 60 call. I still made 40% on it. AND I had sold calls against it in the past, so my net gains were higher.
My rules are still a bit foggy. I'm not sure anyone could pick up my trades and continue them if I wasn't around, and the cabinet analogy has been percolating with me. I understand more and more every day why it needs to be clear why I trade what I trade and how. I'm just not sure I can put it down on paper. It seems so intuitive.
Hope this is helpful.
My New Mantra! Be Right! or Be Right Out! That's about poetic as I get!
Good morning fine sir
I wish you well
A pleasure to battle
And i wish you well
You are a friend indeed
all kidding aside
but I am getting close
to where you reside
you have taken the bait
to my trap your not hip
and closing in
none other than Chip
I just wanted to say thank you. You are a constant here on this blog. Your words of advice and perspective on trading have been invaluable to me. I agree totally with Ramio. It is not always easy to take the time to share like you have. What you said on your last post struck home. I wanted you to know what a difference you have made to me personally in my trading. Thank you for sharing.
I was also searching last the last couple of days. I came across SIGM. See if you like it once it breaks above its flag
Anu
Jeff, Thanks for being the voicew of reason and calm in a crazy day on the market.
This blog has been invaluable to me, as well as the Marketcast. Thanks again.
Elaine