Miserable week

The market finally underwent that correction (well, just a breather so far) that I had been anticipating for a couple of weeks now. Of course, I turned out to be exactly ONE day late...with the pullback starting the very next market day after my February SPY put options expired.  I learned many lessons about protecting profits, and telling the difference between a natural price pullback and a outright trend reversal.  In addition, I witnessed how perfectly rational moves can be quickly overpowered by irrational behavior in the stock market. Overall, I had a horrible week...erasing every cent I had made throughout the entire month. All I can do now is lick my wounds, learn my lessons, and make that money back.

As I had mentioned in my last post, the situation in Libya shot the price of oil sky high, instilling a lot of fear into the market, while boosting oil related stocks. GPOR was an example of this, rising 8.5% for the week. However, this served as a negative catalyst for the overall market, and the S&P 500 fell hard for three days before recovering some of those losses in light trade on Friday.  LULU, one of my best performers this month, gave back all its gains in a matter of days, triggering my poorly set stop loss before promptly bouncing back Thursday and Friday. After reexamining the chart, I realize I should have placed the stop loss about a dollar below where I had it. Drawing trend lines on the earlier consolidation period created a level of support that held perfectly. Unfortunately, I did not see this support previously, and my stop loss was above it. A $1000+ gain was suddenly turned into a $313 loss. However, the correction in LULU came hard and fast in heavy volume, with the upward bounce coming in relatively light volume, so I'm not sure how strong the support can hold. APKT also underwent a hard correction, but recovered and actually ended the week with a positive gain.  Lesson learned: price pullbacks are natural and should not cause reason to panic. Setting the stop loss points at reasonable prices will provide a safe cushion for natural pullbacks to occur and recovery to happen.

I don't get it...

Despite the mistakes I made with my long stock positions, the real damage to my portfolio came as a result of options. The general consensus is that options should not be toyed with by beginners, but I feel like a year of research and learning had provided me with a sufficient grasp of how options worked. Like many things, however, theory rarely applies to the real world. A previous post talked about how to play an earnings short squeeze. I used this strategy, but in hindsight (for now), I greedily used options to overleverage my bet.  Deckers (DECK) was set to announce earnings on Thursday afternoon, and I expected that they would beat expectations. My analysis (and firsthand experiences with how the UGG boot craze has not subsided...even I had bought a pair for someone in December) indicated a strong 4th quarter showing for 2010, so I had bought 5 March 19th DECK call options.  This essentially gave me control over 500 shares of DECK stock...around $45000. I stomached a treacherous price pullback throughout the week, confident that the earnings short squeeze would more than make up for the losses. After the close on Thursday, Deckers beat earnings expectations by 28 cents/share, and share prices rose. Friday morning saw DECK gap up to an all time high of $94.00, and I was elated. However, despite a strong day in the overall markets, DECK plummeted to $88.30 by the close, and the value of those options alone erased my gains for the month.  I probably won't be touching options for awhile...at least not until I have a set plan as to how to use them. Overleveraging with 5 contracts was just greedy, no matter how sure I was of my bet.  If it were stock, I would barely be buying 100 shares (equivalent to 1 option contract). I could have risked just $700 and controlled $9000 of stock. Just live and learn...no real strategy to talk about today, just a bunch of whining.

Friday, February 25th, 2011

Weekly Change: Down $3702.18 (-16.9%)

Daily Changes (Starting Tuesday, Feb 22nd):  -$1977.92, -$468.68, -$556.57, -$699.01 

Current Porfolio Value ($20000 on January 24th, 2011): $18096.05  (Down 9.51%)

February Performance: Down $937.51 

Market Outlook: Short term bearish, long term bullish. Uncertainty over Libya continues to push oil higher and instill fear into the market. Volume was much heavier on the down days than the lone up day (on the S&P 500 and Dow Jones Industrial Average), perhaps indicating that correction is not quite over. Positive domestic economic data continues to be positive, and the market's reaction to positive and/or negative news will be telling as to the viability of this bull market. 

Holdings:

APKT - 100 shares - $76.65/share

GPOR - 300 shares - $29.39/share

MDF  - 400 shares - $5.08/ share

ZAGG May 21 $10.00 Call - 5 contracts - $1.05

ERX July 19 $86.00 Call - 1 contracts - $12.60

DECK March 19th $90 Call - 5 contracts - $2.50

Trades: Tuesday, February 22nd, 2011 - Friday, February 25th, 2011

Sold LULU (100 shares) - Stopped out...however, bounced off of support that I had not seen soon after

Sold ARUN (100 shares) - Stopped out when price fell below the top of the gap (from last week's gap up)...price did recover somewhat

Bought GPOR (100 shares) - Added to position during a strong week

Bought DECK March 19 $90.00 Call (5 contracts) - Speculating on Thursday's earnings report...

The magic of free stock screeners

Over time, technology has revolutionized the way stock investing is done, perhaps none more so than the proliferation of the internet. During the 1990's dot com bubble, especially, individual investors enjoyed the many discount brokerages, market tools, and other features that sprung up across the internet.  Day trading was an accessible activity for even a market novice, as he/she could open up an account online at a discount brokerage and pay low commissions while trading all they wanted.  Long gone were the days of having to pick up the telephone and place orders with a broker, all while paying a hefty commission.  However, perhaps the biggest benefit of the internet revolution is the wealth of free research tools available online. In particular, stock screeners have made the task of stock selection easier than ever for a casual trader, who likely doesn't have a team of research analysts poring over financial statements and stock charts to find the next big winner.

For a cheap college student like myself, the availability of free research tools is very important.  Apart from a subscription to Investors Business Daily and its online features, all my other research is done with various free tools and software. NinjaTrader allows me to use an institutional grade charting and backtesting package (the software in full is free if it is not being used for live algorithmic trading), for example, and websites such as http://www.freestockcharts.com/ and www.stockcharts.com keeps up to date price charts at my fingertips.  For fundamental and economic data, Yahoo Finance and  ADVFN provide a wealth of data, all for free. The resources available are endless, and a simple Google search can find a cash strapped individual investor virtually any information he/she needs. As mentioned earlier, one of the most beneficial tools available on the internet are free stock screeners. Formulating a strategy is all fun and games, but the real test comes in how efficiently a trader can scan the market for stocks that fit their given set of criteria, and effectively filter out suitable candidates from the rest.

FINVIZ in action, using my CAN SLIM screen

Financial Visualizations, aka FINVIZ, provides what is in my opinion the most comprehensive and user-friendly free stock screener. In addition to a number of other great features ("heat maps", financial news, industry and sector performance, insider trading, fundamental data, as well as futures and forex data), FINVIZ has a robust screener that allows a user to screen for descriptive, fundamental, and technical criteria. What I like best, after the tremendous number of criteria choices, is how the results are displayed in a neat table, with preset or custom headings, sortable on the spot. Once a suitable screen is created, it can be saved, and the table can be exported into Excel for further analysis.  In addition, stock symbols can be manually added on the screener page, to enable a customized watchlist to be made and exported.  I personally have created and utilize a number of screens on this site, including a CAN SLIM screen, an undervalued growth screen, and a Peter Lynch GARP screen, to name a few.  I typically include "screens" that consist of custom lists of stocks (such as the weekly IBD 50 or leaders of specific industries), and merge all of the exported Excel spreadsheets of the screens I want to focus on. From there I can easily sort and pare down the list by removing statistical anomalies, red flags, etc.  The end result is a very manageable watchlist of high quality stocks that fit my style, with a wealth of descriptive, fundamental, and technical data all in one place. I then typically analyze the chart of each stock on this list, and make further eliminations. The stocks with healthy charts have an entry target price attached to them, and I set up text message/email alerts to let me know when a buy signal has been generated (a procedure to be explained in a different post).  The FINVIZ screener is a robust way to quickly and effectively reduce an investor's stock universe to a manageable size, from which a more thorough analysis can be done in a timely manner. While I won't describe them in detail, other effective free stock screeners include Zignals, Morningstar, Zacks, and ADVFN.

My portfolio had a mixed week, despite yet another steller week for the overall markets.  My miscalculated bet on the S&P 500 turned out to be a failure, and I sold off the rapidly devaluing SPY February Put options before they expired worthless. I've always read about the importance of not trying to buck the market's trend and instead following it, and this trade taught me in a very painful way that you really can't predict that market.  My two best performing stocks, LULU and APKT, both seemed to fall into new consolidation periods, while GPOR had a solid week. A failed trade I made Friday was chasing OPLK during a breakout. I bought it higher than I should have, and got stopped out by the end of the day at a slight loss. Perhaps I had placed the stop loss too high, but I'm just going to move on and find other opportunities. I opened two new positions from my watchlist in ARUN and MDF off of clear breakouts from well defined bases.  In order to clear up funds, I sold JKS at a solid profit.  In summary, I had a very good week from the long stock positions, but the big loss from the failed SPY option negated much of that.

Friday, February 18th, 2011

Weekly Change: Up $55.51 (.25%)

Daily Changes (Starting Monday, Feb 14): +$255.61, -$410.00, +$197.16, +$12.74, -$145.08 

Current Porfolio Value ($20000 on January 24th, 2011): $21798.23  (Up 8.99%)

February Performance: Up $2878.34 

Market Outlook: Bullish. Market continuously finishes higher, even on days when it opens down. Upward buying pressure is seen throughout, and U.S. equities seem to be a better and better investment as many global Emerging Market equities are faltering.

Holdings:

APKT - 100 shares - $72.92/share

LULU - 100 shares - $82.12/share

ARUN - 100 shares - $31.22/share

GPOR - 200 shares - $27.08/share

MDF  - 400 shares - $5.15/ share

ZAGG May 21 $10.00 Call - 5 contracts - $1.40
ERX July 19 $86.00 Call - 1 contracts - $10.00

Trades: Monday, February 14th, 2011 - Friday, February 18th, 2011

Sold JKS (100 shares) - Cleared up room for better stocks, $100 gain

Sold SPY Feb 19 $131.00 Put (10 contracts) - Failed bet, detailed in my post, -$770 loss

Bought ARUN (100 shares) - Stock gapped up on great earnings and cleared its trading range...had been on my watchlist for a long time

Bought MDF (400 shares) - Broke out of trading range on high volume

Bought OPLK (100 shares) - Breakout on high volume

Sold OPLK (100 shares) - Had bought too high..stock fell somewhat intraday and was stopped out. Unfortunate mistake. -$83.00 loss
Bought ERX July 19 $86.00 Call (1 contract) - Speculating that Mideast unrest will boost energy prices at least through the summer