Some Reflection

The market has been extremely volatile during the last couple of months. The first big lesson is so obvious but I doubt many people were doing it when the media was so bullish: whenever all major markets show Head and Shoulder pattern, get very defensive( using Inverse ETFs and selling covered calls).
Furthermore, always pay attention to some warnings as shown by various charts such as the following

From the charts above, we can see that the market is heading into some serious trouble mid-late July. Even some early warnings are give back in March and April ( For Example, Bonds start to outperform SP 500 and Large Cap start to outperform Small Cap).

In reflection, the media ( especially CNBC ) was extremely bullish back in April. Yes we did have a stella earnings season for Q1 2011 but that doesn't justify DJIA can break above 13000 and head to 14,000. A couple of analysts on CNBC were expressing their belief that Dow is heading to 14,000 which no proved to be some big joke. Lessons learned again, media's always late and wrong, charts don't lie.

August and September have been weak, especially September. Paying attention to seasonal analysis and sector rotation would be tremendously rewarding. 

July 5th-- Always stick to the system.

Today's lesson learned: Don't take any trade or take maximum 1 trade when your portfolio is performing well.
Winning trade: SQNS Profit: 12%
Losing Trade: PWER:  Loss: 4.85%

Why did I lose: 1. I justified a wrong entry signal just to make a far-fetched falling rectangle.
                        2. Didn't notice CMF was mainly below -0.1 during consolidation, which is a bad sign.
                        3. Exited at noon because I had to rush out and sold at the exact bottom again.
                        4. NO CLEAR ENTRY SIGNAL AT ALL: PURE GREED AND EUPHORIA!!.

2011 July 1st-One Rational Trading and One Emotional Blunder

Overall, today was a good day, my portfolio has outperformed the market for more than 7 days in a row. However, I made one almost unforgivable mistake. We'll dig in later.

I closed out 2 positions today, JMP and POZN. 

1. JMP 

Enter Price: 5.99  

Exit Price: 7.12 

Profit: 22% 

Days Held: 5 days

Trade Entry Signal: V shape reversal with William % R and Full STO oversold, Bullish MACD crossover. 

Fundamental: P/E 15  EPS: 0.47 

Exit Signal: 6 long white candles followed by a doji. 

2. POZN

POZN is a fundamentally pretty strong stock with p/e around 6.5 and EPS 0.67, it was rated one of the most efficient pharmaceutical companies in America. 

Mistakes made: 

1. No clear Entry Signal. 

2. Let fear get in the way. 

3. MACD was showing positive divergence, no clear exit strategy at all. 

4. Got flushed out as weak hand, sold at exact the bottom around 4.18. It was a loss of 16%!!! 

Reflection

The market rallied this week for a couple of reasons. I did not take any trade this week primarily because it is harder (not impossible) to find good deals in up days, especially when the momentum is pretty strong. Secondly, it is against the trend to go short when the market is going up. The risk/reward ratio is simply not worth it.

Above being said, I've spent two days reading the investment classic-Security Analysis. While the bull market is still intact, we can't forget about what the past had taught us. Even though I, myself, did not experience the crash of 1929-1932, the dot.com bubble and the most recent crisis, it is always a good idea to take precarious approach to protect my investment even in good times.

Today was a good day for me, my portfolio was up 3% in a single day. Looking under the hood, however, I do realize that some of my picks a while ago have proven to be pure mistakes because I did not adhere to the "margin of safety" principle and took some actions based on emotional turbulence instead of sound rationale and attractive risk/reward ratio.

I love Apple's product but  I've lost some money on AAPL simply because I didn't stick to my system. Looking back, I would've made money out of the last two major shakeouts accompanied by hammer candlesticks. Similarly, had I paid more attention to the risk/reward ratio, I wouldn't have bought POZN at the near-term resistance.

Reading Security Analysis really calms me down and makes me rethink some of the positions I've held before or am holding now. I'll keep reading it and come back with some more insights on the value investing side.

June 24th

The market started off today with another drop followed by debt concerns in Europe, especially in Italy. Although there is nothing new about this, we are in a very volatile market now, any good or bad news, albeit inconsequential, may impact the market. Again, I expect strong corporate earnings coming up and I still believe this is an intermediate correction as opposed to a bear reversal.

Trade today is CPIX, and trade signals are:
1. Very clear Falling Rectangle, one of the most bullish chart pattern. What's better, this pattern was formed during a more than 2 months period, boding well for a bigger move in the near term.
2. ADX kept falling during the formation of the falling rectangle to below 15 and it started trending upward a couple of days ago. +DI crossed over -DI and the distance between +DI and -DI is widening.
3. Positive Divergence of MACD line and Price. Price was forming lower highs and lower lows but the MACD line didn't form lower lows. This could've been a more powerful divergence had the MACD Histogram showed the divergence as well.

Trade taken: Long 1/2 position @5.65, another 1/2 position @5.50 for an average cost of 5.58.

June 23rd

The market today kicked off with an expected dip followed by Fed Chairman Ben Bernanke's comments on the U.S economy yesterday. Although the Chairman's comments were nothing new, and I think the current U.S market has partially reflected most of the concerns over the health of the U.S economy, many traders were hoping for the Fed to take on QE3 when QE2 comes to an end in June. However, the Chairman did not provide any clue that the Fed will take any action soon.

With the above being said, I'll be closely watching the earnings season. Even though job data and other economic indicators have been very disappointing, once corporate earnings show some strength like they did in the April earnings season, I believe the market will head up despite the slower pace of recovery of the economy.

The trade I made today is National Penn Bancshares.Inc (NPBC, Nasdaq GS).
Shorted 500 shares at market open @7.61
Covered 500 shares @ 7.44.

Trade Rationale: 1. Price penetrated upper MA Envelope (10,5)
                 2. Yesterday's high was higher than the high of the day before.
                 3. Yesterday's close was lower than the close of the day before.
                 4. William's R% highly oversold

What I could've done differently:
1. Stocked actually gapped down at opening and it might be better to wait around     10:30 to take any actions.
2. The MA Envelope has just taken on an uptrend. It would be safer to take the trade had condition 1-4 occurred at a peak of the MA Envelope.