Tag Archives: SMH

12 months have come and gone (Part 1)

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That was fast! What are the results? Very mixed.

My accounts are slightly positive on average. However this is not satisfactory for so much work that I had put into trading.

With market being negative for the year so far, it is very little comfort. It is time to revisit the approach and the trades in more detail.

So far the approach to my trading proves itself. The bigger challenge is to continue to tune the size of trades under the market conditions. I do not want to just outperform the market on relative basis. I am targeting to consistently make real money every year. It is always work in progress.

Below is the list of ETFs that I follow. I do not trade all of them. I am most comfortable trading MDY, EEM, XME, SMH, EWC and EWZ.

“%GL” is the % from the top value reached within last 12 months. The market is under pressure to say the least. XME retraced almost 40% from the high. You can’t just buy and hold.

Look at the chart of XME:

XME121811

XME seems to have formed a triangle oscillating around a center line of about $60. Holding XME in a portfolio for long term doesn’t look appealing. However XME as a trading vehicle is quite predictable if performed with patience and proper risk management.

ETF Performance

Symbol%GLLast
SLV-40.33$28.85
XME-36.88$48.88
EWZ-36.88$56.94
XLF-27.09$12.54
EEM-25.60$37.52
EWC-25.48$25.76
EFA-24.89$48.34
EWA-22.79$21.89
EWJ-22.18$9.05
SMH-20.83$29.12
XLE-18.24$66.14
IWM-16.76$72.26
GLD-16.48$155.23
MDY-16.08$155.22
IJH-15.91$85.56
SPY-11.36$121.59
QQQ-7.55$54.86
UUP-3.89$22.49
TLT-2.14$122.32
TIP-0.87$116.97

Potential trade in semiconductors?

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I was planning to write more on the topic of trading within a longer time frame as a follow-up to my last blog. For now, please see my answers to comments to my last blog.

SMH caught my attention currently.

The weekly chart of SMH shows a retest of a large inverted H&S (H in November 2008, LS in January 2008, RS in August 2010). MACD doesn’t look good but is reaching extreme low level.

A double top pattern from February and May 2011 seems to have reached the target already at around $27.

Lets zoom into a daily chart.

The daily chart looks promising. SMH is potentially carving a short term bottom. It has tested the $24 area couple times recently. MACD is rounding up with some positive divergence last week. Negative is that it didn’t close above SMA(20) on Friday. SMA(200) is flat, SMA(50) falling, SMA(20) is trying to hook upwards. Also negative is the still falling On Balance Volume indicator that in the past guided me on direction of the moves.

It is not a good time to enter it for a swing trade. The next good support is around $24. The solid resistance is around $30.

Two possible trades that I may attempt:

  1. A very fast short term trade from intraday chart when SMH breaks above $30 to capture the short covering (mind the resistance at around $32).
  2. Or wait until a drop to around $24 and trade from a weekly chart based on conditions during that drop

I consider the zone $24-$30 for SMH to be a congestion area full of noise and misery…

Eva

Difficult to sell?

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Many traders, even the seasoned ones fall in love with their winning stocks. The market has been working its way up since the beginning of the year and I suspect this is the case now.

I am not saying that the market is ready to fall from here, I don’t know that. Many ETFs are pushing up and hitting resistance.

Traders who “love” their stocks have emotional problems making a decision to sell them to take profits. They find pleasure in watching how their favorites keep printing money. There is a risk hiding here. A trader who developed an emotional bond with a ticker will be paralyzed when a sudden selloff happens. He/she will not be able to pull the trigger.

When is the best time to sell? When you have a winning trade and you made money! I am not saying here to exit your trades. The market may keep pushing up. I still see too much of empty talk on the media “stocks are expensive”, “market ready for a correction”, etc. The most spectacular drops happen in the market when everybody finally believes we are going straight up and only up. When we do not expect danger, this is when something hits us.

How to prepare for this moment? You need to know how to sell and you need to know that you can do it.

Look at your favorite trades that you are still in. Choose the one you “love” the most. And just sell a portion of it. Whatever it is, even 5% of the position. Just sell some of it. Can you do it? Did you hesitate? How did it feel? Was it difficult?

If that was difficult, imagine how difficult it will be for you to pull the trigger to let it go when something happens. You will watch in disbelieve when your gains are being wiped out.

Get ready – practice to be able to take emotions out of your trading.

During the day I observe bouts of selling with no takers here and there, just to see more buying to come back couple hours later. Look at the 10 day hourly chart of SMH – the long candles on the way down almost every day in last couple weeks. The money kept coming back. Now SMH is squeezing. Is it consolidating before its next run toward the resistance at $36-$37?

IWM is testing support around $84 (which was its most recent resistance). Is it ready to turn back up (see the 10 day hourly chart) or is it going to test SMA(20), SMA(50) on the daily chart? I give these scenarios 50/50 chance.

If IWM turns back up, the probability of SMH to run to test the resistance $36-$37 will be greater. The shorts having stops in these areas will be forced to cover pulling the price up…

The market seems like it doesn’t care about international tensions, European debt, US debt, Japan tragedy… is there a bigger boogeyman? What is it? Is it inflation? Money moving out of bonds? Keep your eyes wide open…

Eva

Left out in the dust?

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Do you feel sometimes like you missed a major move in the market? Do you ask yourself “what was I doing?”

Maybe you were listening to the “Sirens” from my previous blog?

Look at QQQQ on 5 year weekly chart. While the market “gurus” were talking that the market was overbought and due for a big pullback, QQQQ moved quietly above the decade high! Wow. How could that be? It looks like a large H&S with the neckline around $50-$55. It went through it without a fanfare.

I do not trade QQQQ but I like to check how it’s doing once in a while.

SMH is also trading in what appears a slightly tilted H&S, just above the neckline.

Look at IWM, MDY, they look similar:

IWM 5 year weekly chart looks impressive. What looked like a correction in 2007-2008, was followed by a large 6 months plunge of 2008-2009. It boldly climbed up for 13 months and went through a 6 months long correction of April-October 2010.

Currently IWM is trading against the resistance at a high from July 2007. It has not retested the support of $75 after it went through it at the end of November 2010 (then a resistance). MACD flattened.

Look at daily IWM. IWM tried to correct in January, 2011 – SMA(50) held at low BB. It started correcting again Feb 18th 2011. Is it going to hold SMA(50) or retest &74-$76 area?

Look at SPY 6 month’s daily chart. Look at how it traded in November 2011 and how it’s trading now. Apply to your charts: MACD(12,26,9), BB(20,2.00), SMA(20), SMA(50), SMA(200), W%R(30). I don’t like to overload my chart with too many indicators however for this exercise you may also look at RSI(14) or STO(14,3,3). The current correction looks similar to the one from November last year so far. SPY may retest nicely SMA(50) but it also may try to retest $120-$122.

I will keep this chart in front of me when I trade this week to make sure that I tailor the risk accordingly.

Maybe, just maybe, the market will give me a nice entry for a longer term trade (longer trade for me is longer than couple months). On longer term trades I use 5 year weekly charts to manage the risk (support/resistance levels) and 6 months daily charts to define more precise entry/exit points.

I start looking for good entries on ETFs that may correct significantly (10%-20%). Keep in mind that ETFs with high beta (XME, SMH, EWZ, XLE, EEM) very often correct around 16-20% while SPY may correct only 6-10% in the same time.

Can we correct more, much more? Sure! But we can also: break out and continue push up, or just correct 10-20% before a bigger move up. Observe the market for clues.

Below is a list of ETFs from my watch list:

ETF % Pullback from last significant high Last Close
EWZ -10.54 $73.14
XME -7.92 $68.75
SMH -7.69 $33.95
EEM -5.29 $46.03
EWA -5.27 $24.97
XLE -5.19 $75.11
EWC -4.74 $32.59
IWM -4.29 $80.18
EFA -4.26 $59.34
XLF -3.84 $16.54
MDY -3.11 $173.25

However if the market decides to keep pushing up and up regardless of “the sky is falling” messages from the media I will continue trading at these levels but decide to switch some of my current long entries from “short term” trading to “longer term” trading…

Eva

Why ETFs?

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Last week I was on the road with limited access to the computer and very limited new trades.

Let me start with addressing a general question about trading ETFs: where to find information about ETFs, would I trade TZA, etc.

If you are interested in specific ETFs read about them on Yahoo Finance, or go to the source (iShares , ProShares, etc).

It took me several years of trading to make a decision to focus solely on trading ETFs. I limited the selection based on my observations over the years which ETFs trade in a way that I can predict the next move with a better probability. ETFs, also like stocks, have their “behavioral” patterns and volatility. Some of them are more predictable, some less.

I want in my selection: volatility, market segments/industry/international that can move faster or are significant for the market direction.

I am not interested in researching why they act the way they do over time. I am mainly interested in noticing the patterns and assessing the next move and the risk.

Why do I use the narrow group? It’s a selection I am most familiar with and that familiarity gives me a better chance to be consistent with my trades. I prefer to trade IWM over TNA. I do not have a need to juice up my trades. TNA is too fast and never gave me consistency of trades. A simple choice: do I want to make money slowly or loose it fast? I chose the former.

Why don’t I trade TZA? Not in this market first of all. Why would I want to waste my energy to swim against the currently prevailing market force?

It is true that RUT is close to all time high. What is the next segment of the pattern? Is it going to be a double top or a breakout? I don’t know. I am certain that nobody knows. I will just keep trading…

Look at the most recent 10 day hourly chart of IWM. Check my blog from January “Buy at Support – Sell at Resistance”. The setups keep coming.

IWM 14 Day Hourly Chart

The ETFs that I trade frequently are IWM (for non IRA account) and MDY (for IRA account). These give me the broad market of small and mid caps with volatility. For these ETFs I manage risk without using stops. Instead I time the entry based on charts, use the position size and modify frequency of trading. I do not have a loosing trade doing that however my risk is in time how long it may take to make money on some of the trades.

When I trade EEM, EWC, SMH, EWZ, XME I don’t use initial stops. Instead I time the entry based on a chart and write a plan for next trade: levels of support/resistance, buy points, partial trades. However once I have a winning trade I mostly use the technique of rising stops to avoid turning my gains into losses. Very often I may decide to exit if market is giving me mixed signals.

It is much more productive to take the money when I still have it and look for a fresh opportunity vs. sitting in a winning trade with a growing chance of a reversal at resistance.

I don’t put more than 10% of my account value into a single trade. I define a trade as an event in time on the same ticker. This way I may have a position that is bigger than 10%.

I am never fully “invested”. I am a trader so I need cash for trading…

The market is an always changing formation which I respect a lot. I do not trust it though.

Eva