GOOG In-Trend Short - Target Hit

My sell order for the Put option was when GOOG hit 1001. Yesterday's (11/20/18) low was 996.02 but if you've been following this series of posts you know my rules got me out 2 trading days earlier. Only thing worse than being right but losing money on a trade is experiencing price action that's an exception to the most common behavior that your rules are based on. What's so bad about that is that it shakes your confidence in your rules. If you can't follow your rules you're trading on emotion which is a very bad idea.

My biggest challenge at this point in my trading journey (started 2010) is self discipline when a set up looks really good but doesn't fully satisfy my rules. Can't believe my discipline isn't perfect by now. Its much better but not perfect. So when I exercise discipline in the face of pain, like I did on this trade, and take the loss to avoid a bigger loss, then price action reverses and hits the original target, it seriously bothers you.

You might say why not just get back in when you saw the reversal? In fact, that's exactly what I told myself. But the next morning I was trading other things and didn't trust what I saw on GOOG, and didn't see much of a pull back to re-enter the bearish trade anyway.

Final take away from this trade is that no methodology or set of trading rules will work 100% of the time. So you're going to experience losses even if you have perfect discipline. You can always improve your rules but if they are built on a solid foundation then you can't let the losing trades get you off your game.

Create rules to give yourself an edge and control losses. Back test those rules until you believe in them. Then be willing to improve them but you must follow them to get the edge you need.

GOOG In-Trend Short - Day after exit

11/19/18 at the close. You have got to be kidding me!

GOOG In-Trend Short Exit

Yesterday's market close decision was tough, today's was painful. We have all the same reasons to stay in and to sell as yesterday when I decided to stay in (see yesterday's post). So what's different today that made me decide to get out?

The first thing is we closed over the 8ema for a second day. If you zoom in super close you can see the 3 day ema (purple) has just crossed over the 8 day ema (orange). This often signals an imminent pop. Another thing is next week is a seasonally up week, being Thanksgiving week, and volume is expected to be light, which often results in a slow upward climb.

Just the fact that this is the second day we'll close above the 8ema is enough reason alone to exit. I know I should follow my rules, but my mind is screaming to stay in and not take the loss. But I did the "right" thing, overcame my strong emotions to the contrary and hit the sell button at 3:58pm ET with a limit order at just over the mid-point of the Bid/Ask spread. I waited as long as I could for a sudden and sufficient drop in the stock price at the last minute but it wasn't happening.

So I sold the GOOG Dec 1000 Put Option for a loss of $852.19. Now we'll get a big gap down on Monday, right? Oh well, can't let the fear of that influence the decision. Trade what you see, as guru Larry Pesavento would say.

When I try to find a lesson to learn from this trade, it might be that I shouldn't have taken an unhedged bearish trade so close to a seasonally up week. A vertical Put Spread would have lost less money, plus I could take off the long side and keep the short side if a bullish pattern developed. But a vertical spread would have less profit if the trade worked.

GOOG In-Trend Short Update 1

Tough call. Very tough call. The Put option ended the day down -$666. Represents a lot of heat, in more ways than one. Do I sell or do I stay? Here's my thinking:

Notice the low of the last 4 candles. They were all within 77 cents of $1031. That seems remarkable. You might conclude there's some very hard support at 1031. Also 1031 is very close to the 61.8% Fib from the most recent upswing, which could be helping with the support. Today closed over the 8ema on slightly higher volume with a sizable candle. Looks like the DMI+ green line is about to cross over the DMI- red line, which usually is coincident with a pop in price (in my opinion). The 10/29/18 low coincides with the 3/28/18 low, which could provide support and result in a double bottom pattern. Together these make a reasonable case to get out of the trade and preserve what value is left in the option.

On the other hand, notice the bottom of today's candle body (the open), is slightly higher than than the bottom of yesterday's candle body (the close). Technically this means we do not have a valid engulfing candlestick pattern, which means we don't have a candlestick buy signal. Today's candle closed right under the 20sma and a trend line that it recently broke to the downside. This could be just a retest of that trend line. The 20sma often acts as resistance. Today's candle close is very close to half the retracement of the most recent down swing, which is a very typical retracement before resuming the current trend. The dominant trend, which you can see in the previous post, is decidedly down. Stochastics have not been oversold for many days. There could be some price movement today due to options expiration day tomorrow. Together these points introduce serious doubt whether getting out today is the best idea. It could lead to missing a gap down day tomorrow.

The big picture is we've been in a consolidation phase since about 10/30/18, after a respectable down trend. You'd have to say the momentum is currently to the downside, which means the breakout of the consolidation is more likely to be to the downside.

So, after considering all of the above, I decided to hold it overnight and see the degree of follow through to the upside tomorrow, if any. This isn't the price action I was expecting to see, but you just have to play the cards you're dealt the best you can.

GOOG In-Trend Short

Bearish Harami. Close under 8ema. Under all DMA's. Stochastics not oversold yet. Broke short term Trend Line (Flag). Cooperative Ichimoku chart.

Target previous support 988. More conservative target could be 1000 swing low
& round number.

Got a GOOG Dec 1000 Put at 3:46pm ET for $23.50. Set a target of 1001. Used 1001 instead of 1000 in case of an early bounce.

Notice the Option Open Interest is the highest (2.62K) for the 1000 strike price. Guess I'm not the only one with this bearish view of GOOG. Notice Theta shows a daily loss of about $48 in time decay. I thought about getting a vertical spread to save on Theta and reduce the value at risk, but the Bid/Ask spread isn't very attractive and the spread will have a significantly lower Delta which will substantially cut into potential profits. So I just got a simple option since the bearish chart pattern looks so good. The faster it hits my target the more I save on Theta loss, but I'll be happy if it hits my target at all, rather than a deviant rally.

AAPL Head & Shoulders short exit

Well, I expected the trade to last more than one day, but I'm out with a nice profit. The target was the 200 DMA which I estimated would be about 194 when price hit it. This morning when the stock price broke 195 around 10:40am ET I started micro-managing the trade on the 3 minute chart.

Price hit a swing low at 194.32 and started creeping up. It looked like a bottom was forming, at least on the 3 minute chart, plus around 10:30am ET is often a market reversal time, and we were overdue at 11:00am when price pierced the 3 minute 8 EMA. So, to risk staying in for another few pennies of profit on the option, literally a few pennies, versus capturing a sizable profit very close to my target, didn't seem like a good risk/reward.

So I sold the AAPL Dec 195 Put for $7.45. With a cost yesterday of $3.20, that's a profit of $425 per option, or a 133% gain. Not bad.

AAPL Head & Shoulders short

11/9/18: Head and Shoulders neckline break followed by a retest of the neckline. Couldn't close over the 8ema and gapped down. Thick white vertical line is the Head and Shoulders expected measured move. Thin white horizontal line is half the measured move, which is sometimes the extent of the move. But the 200dma is just under that, so make the 200dma the target, around 194.

Got AAPL Dec 195 Puts at $3.20.

ULTA looking bearish Update Final

Boom! Out at 9:31 at $9.40. Had entered the Feb 230/210 Put spreads at 5.41, so that's $940-541=$399 profit per contract, or 399/541=74% increase, woot!

Looks like steak tonight. So nice when something works.

ULTA looking bearish Update 5

We got a very constructive candle today. Nice big red bar with a close below the 8ema and 50sma, and near the bottom of the bar. In fact, the low was only $2 over our target. Close enough to tempt me to get out with a nice profit, but I fought the urge and held on. It looks very likely we'll hit the target tomorrow.

Looking forward to the market open.

ULTA looking bearish Update 4

Yesterday started with a nice downward drive and looked like we might hit our 219 target, but then it retraced and closed just above the 50sma. In addition to that uncertainty, the candle closed as a doji, which symbolizes uncertainty.

We're still below the 8ema and stochastics are above 20%, so we want to hold our short position. In addition, the little bounce we had the past three days and yesterday's slight break below it sets up a possible AB/CD lightening bolt pattern. I added the yellow bold vertical line segments as the projected measured move. The thin horizontal yellow line is half the measured move, which I find is more reliable than the full measured move. Notice the halfway point of the AB/CD measured move is very close to our target of 219 which we established from the white line segments based on the Head & Shoulders pattern and the 50% Fibonacci level. This confluence adds confidence to the target level.

ULTA looking bearish Update 3

As you can see we're bouncing off the 50sma. Annoying but not surprising. Especially annoying because all the major equity indices are down today and the VIX is up. My Feb 230/210 Put Spread position is about break even at this point but I'm going to hold on and see how price reacts to the bottom trend line of the up channel. We're currently still below the 8ema which is encouraging. It would be best if we don't close over the 8ema, but even if we do, I'm going to use the trend line as my stay-in/get-out indicator instead of the 8ema on this one because I think it carries more weight. Also notice the 20sma coincides with the bottom trend line of the up channel. This could add some additional resistance.

I expect we'll reject off that trend line, if not earlier off the 8ema, and head back down to at least the 50% Fib around 219, which is still my target.

ULTA looking bearish Update 2

The desire to exit today was strong with this one. 218.50 is both the 50% Fibonacci retracement as well as half the measured move for the Head & Shoulders pattern. So my 219 target seems like a good one. Stochastics are just at the 20% level so its not oversold quite yet.

But, price bounced off the 50 SMA today just after breaching it a little. We have a nice profit already if we got out near the 50 SMA, and there's only 2-3 weeks left on our option, so if we get a bounce tomorrow to go back up and test the bottom of the channel before continuing down, that might take several days which starts to become a Theta decay concern.

However, this pattern is so strong and the stochastics tell us we have some more room to the downside tomorrow, I fought the urge to lock in profits and decided to hold on for another leg down tomorrow and hit my original target.

ULTA looking bearish Update 1

We closed the day below the channel, so now this looks like a really good entry. I jumped in too early and got the Feb 230/210 Put Spread for $5.41 this morning at 9:32am.

By the way, another pattern I saw but forgot to include in my previous post is a Head & Shoulders. The neckline, which is a little above the bottom of the channel, was broken today.

If things go well we might hit the target around 219 this week, if not tomorrow. I want to be out before the upcoming Earnings Report scheduled for 3/1/18 after market close. I expect we'll be out long before then.

ULTA looking bearish

Here's what I see that makes me bearish on ULTA as of 8:45am 1/23/18:

Double Top
Bounce off 200 SMA
Evening star candle pattern
Close below 8ema
Doji gap down on stronger volume

I'm looking to get a Vertical Put Spread today if we start going further down, assuming there's a decent bid/ask spread. Looking at 230/220 and 230/210 Feb and Mar expiration. However, its more risky to enter this trade before we get a close below the up channel. So, I'll go in light before a close below the channel and add to my position after. It would be safer to wait to enter the trade at all until we do get a close below the channel.

Targeting the 50% Fib retracement which is close to the 50 SMA (in red) around 220.

Possible YM Futures Resistance Update 2

Well, we got 1 day of minor rejection of the resistance area, then a gap and run to the upside, and again today 1/12/18 as of 12:45pm ET.

So, we didn't get the more substantial pull back one would expect. This Bull market looks crazy strong in the face of increasing interest rates. There are multiple unfilled gaps in the YM chart over the past several months. There hasn't been a close below the Daily 8 EMA since mid-Nov. In addition to showing these things on the chart above, look how much time Stochastics has spent above 80%.

There are many other statistics I've heard that indicate we might be seeing exuberance. Guess we're just waiting for the last bear to give up. Meanwhile, I'll be watching for technical patterns suggesting a possible medium term top, followed by confirmation. But, until then, on a short time frame, look for bullish setups on markets to go with the trend, while using a good hedge.

Possible YM Futures Resistance Update 1

At 11:45am ET the YM Mar futures chart is at 25,362. So we've entered the expected range I gave in the previous post of 25,350-25,450. After this 3rd upward leg of three on the daily chart, I'd anticipate either several days of sideways action or a quick rejection of this level within 1-3 days.

Of course anything can happen, and the chart looks very strong. But I'm being cautious here.

Possible YM Futures Resistance Next Week

Above is the YM March 2018 Dow Jones Industrial Index Futures chart.
White line segment A1 measures the up move from mid-Nov. A2 is a copy of A1 moved up to start at the new up leg after a small pull back. The thin white horizontal line crossing the middle of A2 marks the middle of A2. I have found the middle of a measured move is often an important level. I also pulled a Fibonacci range on A1. You can see the 161.8% Fib extension from this at the top of the chart.

White line segment B1 measures the up move from the bottom of A2. B2 is a copy of B1 translated up to begin at the start of the bottom of the next pull back. I pulled a Fib range on B1, and the 161.8% Fib extension from this coincides with the 161.8% extension from A1.

So, at the top of the chart you can see the top of the A2 and B2 measured moves, as well as the 161.8% Fibonacci extensions from the actual moves A1 and B1. These line up so nicely, I'm looking for possible resistance around 25,350-25,450 next week.

(I'm also secretly hoping a pull back at that level might be the top of this crazy Bull market, since I've been looking for the top for years. Don't tell anybody, its embarrassing.)