Exxon Iron Condor (XOM)

Exxon has been a nice iron condor stock this spring. It has been trading in a range from 62 to 75, with more overhead resistance at 80, and its options have enough premium to create a good risk-to-reward scenario.

I sold an iron condor on Exxon on April 7. It was trading in the middle of its range and on the midpoint of its regression channel on the daily chart. Entry at the middle of the range has worked well for me, since it gives the stock room to move up or down within its established channel. Great care must be taken to exit the position if the trading range threatens to be violated, however.

Judging from prior resistance at $80, and the March lows of $62, a sold iron condor allowing for this price range seemed a good risk-to-reward trade. Indeed, it was so, and I exited the position on Friday:

I like using the regression channel immensely, as it draws an unbiased trendline on the chart which is calculated according to genius-level, calculus calculations! This gives a quick visual to the actual trading range, and helps me to see when a stock has moved outside of its normal range. It can give warning signs when a new trend is about to be established as well.

In the case of Exxon, the regression channel shows a downtrend over the past year. Of course, Exxon has held up nicely compared to so many stocks! However, it can be seen on this chart how price met resistance on the regression channel and retreated each time:


Iron condors love sideways action with some volatility, which is what Exxon has delivered since April. Managing iron condors requires checking the charts on a daily basis, however, to be sure that the trading range established by the position is not in danger of being violated. (Please remember that this is not a trade recommendation!)

Perfect Covered Call Entry on FedEx (FDX)

There was a perfect entry for selling covered calls on FDX last month when the stock hit its 200 moving average on the daily chart. The intraday time frames gave the first signals, with the 30-minute, hourly, and 2-hour charts giving sell signals within the same 24-hour time period.

The daily chart shows 200 moving average resistance:



The intraday charts show almost simultaneous sell signals. Even if you miss the earliest signal on the 30-minute chart, the daily chart MACD sell signal still gave an easy $4 move to the downside!

DE (John Deere)

This was another great trending trade today! I entered the trade with a call position yesterday. I held on the basis of the hourly and 2-hour charts, which had bullish MACD and buy signals:




Furthermore, the daily chart looked as though it was setting up for a snap back up to the 50 moving average, after nine recent days of selling. Deere was at a significant area of support ($39-40) as well.


Remembering yesterday's trending trade on FDX, and last week's on SKF, I remembered to watch the 10-minute chart for the trend. Price stayed above the 5 ma of the 10-minute chart all morning. When I noticed that volume in this time frame was tapering off, I sold at 41.50, which was my original target (the daily 50 ma). It always is prudent to take your target rather than be burned by holding longer than you should. As it turned out, the stock trended higher, but I took a disciplined exit at my target:

DJX (Mini Dow)

This trade is an example of one not to take! The setup was ahead of the Fed announcement, and this is a terrible time to initiate any new trades. It is best to wait for the market reaction before entering a trade ahead of the FOMC.

Internals were deceiving because the Advance/Decline Lines were very bullish, and the volume ratio was very bullish as well. However, MACD was curling over on the advancers, even though they were +2400. Never let the numbers fool you when that MACD begins to look like it could curl over. Even if the advancers decrease to 2200 or even 2000, that is enough for a significant pullback.

The ticks began to look less bullish, as though they had a slight trend down from the open:



Volume tricked me, since the ratio was very bullish, but the MACD was growing on the down volume nonetheless. With its moving average well above it, the down volume had much room to move up and make a big difference in price, which is what it did!




Volume was trending up slightly, but still more sideways than it tends to be on a trending day up. I also noticed that the detrended price oscillator was beginning to trend ever so slightly down....



The DJX chart showed weakness as well. The 5 crossed ever so slightly below the 30 on the 30-minute chart, and the stochastics gave a sell signal, NOT a good sign from a 30-minute chart!


Price also had slipped below the 30 of the 10-minute chart, and stochastics and CCI were giving sell signals. These sell signals sometimes show up on a 10-minute chart, but the 30-minute or hourly charts are still so bullish that it can be taken as a buyable pullback. However, the 30-minute chart was developing slightly bearish moving averages, and price was trading in all intraday time frames below the 200 ema/sma (simple moving average). This is another sign of potential weakness:


The two-hour chart did not have a confirmed buy signal:



And the hourly moving averages were still bearish:


So to summarize, this was not a high probability trade because even though the MACD seemed strong in the 30-minute time frame, it was not backed up by the 200 moving averages or the hourly/2-hour moving averages. These potential areas of weakness made the 10-minute pullback a low-probability 'bounce trade.'

The slight downtrend in the ticks, and the detrended price oscillator on the volume, and the weakening MACD on the AD Lines all were warning signs that pointed to a low probability trade to the upside. Before every trade, we must ask ourselves, "Is this a high probability trade?"

FedEx (FDX)

Today I had a great trade on FDX, but the euphoria associated with it was stolen by a day of overtrading. I consider overtrading to be a vice which must be controlled with discipline and a set of rules. This was a great trade, but I overtraded via the DJX and had 'trader's fatigue' at the end of the day.

It is imperative to read your trading rules every morning before getting started. Mine include a rule, "DO NOT overtrade!" Disciplined trades are the only trades which make a profit consistently over time.

I trusted a holdover on FDX from yesterday based on a few factors, one of which was the white MACD buy signal on the two-hour chart:


Another factor was support in the stock around $50. It looked like a setup to bounce back to the 50 ma on the daily chart. I knew this but did not trust it! Price actually went above the 50 and straight to the daily 30 ema.

Today was a great day to apply my observations from yesterday about trending days up, using the 5 moving average on the 10-minute chart. However, when a trade is going in your direction, your judgment is easily clouded by your emotions, and I jumped out far too soon! Later, I noticed that the 10-minute chart looked much like the KO chart and the SKF chart which I posted yesterday:


So I should have watched it on the 10-minute chart and kept my stop above the 5 moving average, using a stock price stop instead of an option price stop. Resistance 3 was a perfect target, moving stops up along the way.

SKF (Ultrashort Financial ETF)

The SKF had a classic trending day up on June 22. The 5 moving average on the 30-minute chart was the stop, and price trended above this moving average all day. The chart shows that even when 10-minute MACD turns red, it does not mean there is coming weakness when the 30-minute and hourly charts have such strong white MACD.

There was never a CCI sell signal on the 10-minute chart:

The MACD on the 30-minute chart stayed strong all day, indicating that any pullbacks on the 5- or 10-minute charts were buyable pullbacks:



The target was clear: the 30 moving average of the daily chart. Price closed almost exactly at this trendline.

This trade also went with the trend of the market, which was clearly down. This became the worst selloff for the market in a month's time. The SKF shorts the financials, so it was a trade du jour!

KO (Coke)

Coke presented a perfect entry for a call on June 17. It was a classic trending day up for the stock, staying above the 5 moving average of the 10-minute chart all day:


The CCI never gave a sell signal, another clue that the call could be held for a trend up to the former daily highs set on 6/2 and 6/5. (Now this is looking a bit like a double top, which I suspected when I saw this pattern setting up.) Time will tell if this is the case.

IWM Put 6/12/09

There were many clues on June 12 as to when to exit a put position on the IWM. The decliners were running out of steam, as indicated by this chart:



I exited with a nominal loss, seeing that this trade was not going to go in my direction. It proceeded the next week to go in my direction, but it was not prudent to hold over the weekend.

More clues were to be found on the advancers:




The change in MACD on the advancers and decliners must be taken seriously, no matter how much I think the market 'should' do something different!

The TRIN also is an indication of potential market movement. The TRIN was not particularly strong this day, as seen in this chart:




The TRIN had bullish moving averages but never stayed above 1.0. The candle which hit 1.0 shows a topping tail, an indication of lack of conviction on some level.

One more clue was seen in the volume charts. The down volume, although showing white MACD, was not showing the strength which is normally necessary for a strong down move. Therefore, the initial down move upon opening my put position was the trade to take. There was a failed low, after which the price consolidated tightly for the remainder of the day. White MACD grew on the 5-minute, 10-minute, and 15-minute charts as a result of this consolidation. Price then moved up, pulled back, and closed flat to up on the day.



The last clue was seen in the Russell Futures. This chart showed white MACD on the 15-minute and 30-minute charts midday:

After this white MACD appeared, there was still some time to get out of a put position without losing any money.

DJX Put

The futures give clues as to when to get out of a DJX put position. The following chart shows appearance of white MACD on the hourly chart. This was a signal to get out of my put on Friday, June 12:

United Health Group (UNH)

Yesterday, February 28, 2009, presented a trading opportunity on UNH for the downside. The health sector had been pummeled the day before following news about President Obama's plans for health services.

The daily chart shows the weakness with more possible downside to follow:


It has not retested its November lows, and all the long-term charts show weakness. The weekly chart shows the heavy selling, and looking back on March of 2008, one can see the follow through that occurred on such high volume:


Futures yesterday morning were trading below the November lows on the S&P, so it was evident we would see new lows on the S&P and the Dow. For this reason, a put on UNH for follow through to the downside was a trade with the trend. (The trend is your friend!)

Unbelievably, the stock was trading up a few cents in pre-market, confirming the possibility of a good entry. Resistance at 20.64 could be seen on the 2-hour chart:



In addition, a bear flag pattern is working its way across the 2-hour chart...

Furthermore, the daily pivots showed resistance at the pivot point of 20.95. So the entry at 20.60 was a good risk-to-reward scenario.


For a disciplined trade, even though it seems the stock will go lower at some point, the exit was best executed before the end of trading, going into the weekend. This is not a stock I follow regularly, so I believe it is particularly prudent to stay away from 'swing trades' on stocks that are unfamiliar.

The stock did not fall hard, and the 30-minute macd shows the probable reason why:


White macd on the 30-minute chart often seems to keep the stock from falling too hard. In addition, maybe the sellers were exhausted from the heavy selling pressure all week.

Another reason for support can be seen on the daily chart at the beginning of this post. It shows support (marked by a trendline) at 19.50.

It will be interesting to see if there is more follow through next week. I hate to see the health care system go the way of socialization...it will be hard on many of these companies.

United Health Group (UNH)

Yesterday, February 28, 2009, presented a trading opportunity on UNH for the downside. The health sector had been pummeled the day before following news about President Obama's plans for health services.

The daily chart shows the weakness with more possible downside to follow:

Mini Dow (DJX)

Today was a perfect, perfect setup on the DJX to the downside. If only I could trust these setups more often! (Of course, no one wants the market to go down, either, so that can be an emotional block to trading this close to the lows.) I so want this market to rally, but it is not cooperating...

The moving averages went bearish on the 3-minute and 5-minute charts, corresponding to bearish indicators on the 30-minute chart. The target was very clear: the lows of yesterday. So the trade was clearly defined and backed up by bearish internals. The TRIN was above 1.0, which often seems to correspond to more possible momentum to the downside. (The Think or Swim platform is fabulous and has a plethora of information available on measuring and tracking internals.)







The target of yesterday's lows also was wise to follow because it was possible to see a rally off of those levels, which is exactly what happened (but the rally did not hold). Also, the emotional factor of not wanting the market to fall further can cloud judgment, so it is better to undershoot your target rather than get whipped around in the other direction. A little undershooting was in order today, as the lows of yesterday were not quite reached. The Dow came within 17 points of those lows.

McDonald's (MCD)

Yesterday, February 25, 2009, MCD presented a perfect trade set-up to the downside. The 5 moving average crossed below the 30 on the 5-minute chart, and this coincided with the same set-up on the 30-minute chart.





Knowing MCD's support and resistance ahead of time also is helpful. It is important to do your homework ahead of the bell when possible in order to identify correctly these areas. The market moves so fast that reaction time is enhanced by proper preparation. (Now if only I would do this each day!) It is the 'business side' of trading--doing the market research so wiser decisions can be made.

MCD had shown fairly strong support at 54, so this was the proper target for the day. While in the trade, it can be tempting to hold in anticipation that it will trade lower, but wisdom dictates that the target is 54, and it was not breaking this support easily. Therefore, it was wise to stay with the original target and exit, rather than allow a winning trade to become a loser.

Lockheed Martin (LMT)

I really like Lockheed Martin as a company and have enjoyed trading it over the last two years. Yesterday, February 25, 2009, it gave an opportunity for a trade based on long-term support in the 70 area.


Because of this support, it was too easy to anticipate and buy prematurely, as seen on the 5-minute chart. (A 70.73 entry at 10:40, when a better entry would have been when the 5 moving average crossed above the 30.)



Fortunately, LMT gave three opportunities for a profitable exit. The best strategy would have been to set a tight stop at or above 70, and get a better entry later if stopped out. Even better would have been to move the stops up as my initial entry turned profitable.

As LMT rallied late in the day, the 30-minute chart showed potential resistance at 71.80. Once the macd turned white on the 30-minute chart, it seemed it would reach this area, so I began moving up the stops. It is fortunate, as the market sold off sharply in the last 10 minutes. Moving up the stops is a necessary strategy in this news-driven market, and it helps insure profits. Trading with tight stops is liberating and adds to the satisfaction of a job well done at the end of the day.

LMT hit resistance at 72 and promptly fell back. Exit at 71.83 was close to the highs of the day.

The 10-minute chart shows there was more momentum to the last push upward, as the white macd line crossed above the 0 line. The macd indicator is brilliant, and we consider it to be imperative to making good trading decisions.

John Deere (DE)

DE has been one of my favorite stocks to trade over the past two years. It is such a fantastic company, and I admire their commitment to farmers and the environment. The current credit crisis has pummeled the stock, however, and in this trader's market, unfortunately one cannot hold the stock for long. But one can trade it!

Today, February 24, 2009, was a counter trend play based on three factors: after 10 days of downward movement, DE seemed due a bounce. However, one cannot assume in this market environment that something has to bounce. How many times have I said, "It just HAS to bounce!" and then said stock does not!

The other two factors in favor of the trade were bullish internals in the broad market for the day, and a clear monthly trendline which established a reasonable stop loss.

The disciplined trade requires setting a stop when you enter the trade. This guards against making emotionally charged decisions to stay in bad trades, and it requires proper planning ahead of the trade. Setting stops helps to think through the risk and decide if you are willing to accept it, while protecting yourself from a potentially greater loss. I have found that when you set a stop, you are confronted with the reality of what you could lose, and you may realize this is not a trade you are willing to enter. This can be a protection against entering into a trade that is too risky.

In order to trade using proper risk management, one must calculate the maximum acceptable loss in proportion to account size. Protecting capital is the first priority in trading. According to Investools, a fabulous investor education company, acceptable loss is 2 percent of your total account value. So if total account value is $10,000, acceptable loss is $200. In this case, one must set a stop that controls risk at a maximum loss of $200 for the trade.

In the case of John Deere today, I looked to long-term support to find the proper stop, since DE had fallen below levels of recent support (the October, November and December lows in the 28 area). The 10-year monthly chart showed potential support at 26:
So the stop for the day was 26. For a tighter stop, one also could use 26.50, based on a double bottom set on the 5-minute chart. This double bottom in the 26.60 area corresponded to the monthly trend line.

For a disciplined trade, the proper entry also has to be found. A safer entry could be executed using the 5-minute chart, entering as close to the 30 moving average as possible, after the 5 moving average crossed above the 30. This can show that the move has a bit of strength, and this entry proved to be wiser than chasing it on the open, which is often a big temptation. So in DE today, a good entry proved to be in the 27.20 area after this moving average crossover.

Of course, when using the 5-minute chart for entry points, the longer-term time frames must be kept in mind as well.

In this market environment, I have observed that taking quick profits is one way to ensure that good trades do not turn into bad ones! Large gaps down can wipe out nice gains, and they have become a regular event. Bad news in the stock overnight can lead to disastrous gaps down which can stop you out way below your original stop loss price. Even great companies like FedEx (FDX) have suffered recent, huge gaps down of more than $8 which can devastate a small account.

The last thing which one must plan in a disciplined trade is the proper exit! This is one of the most difficult decisions to make in trading. The euphoria of a trade going in your direction can cloud your judgment in when to take profits.

In the case of the Deere trade today, it seemed to me that exiting at 'Resistance 1' was a reasonable exit. That was 28.67, and I exited a bit below this at 28.60. One of my mantras has been, "You can always get back in," but it is imperative to not allow good trades to turn into bad ones!