Looking back on the week, the market seemed to have played a much easier hand to read this week. The technicals are fairly simple to follow here, and the macro economic picture has been painted on a beautiful canvas, thanks to the Macro Maniac, a.k.a Grizzly Adams.
As I reflect on the limited moves I made this week, I must say that the energy short trade has continued to be a monster, in both directions. I set a bad example by being out of town with 3 trades on (MEE, NOV, CLF). Each of these stocks were down roughly 5-10% on Monday, and rallied right back on Wednesday. They are all doing well today, but looking back I feel I could have done even better. This provides another great reason as to why you need to adjust time frames and take profits when the market gets shady.
Allow me to illustrate using CF as an example... Not an energy name, but relevant nonetheless...
This could have been played much better, and in my opinion, for one more comission, I could have produced two monster gains.
I entered this trade on Friday, as I suggested that everyone do when support failed. It did fail, and on Monday CF was down roughly 10 points. The options had made a tremendous move. Had I been near a computer at the close, I would have sold into that move. Why? You can't risk profits like that in this market.
As I have walked you through the anatmoy of my technical approach here on OA, you know how this trade plays out. After the big move, the stock will re-test its old support as new resistance. Tuesday was a great signal that the stock would not continue lower and was starting the process of the "re-test." Had you not taken the monster gains on Monday, Tuesday would have clued you in as to a sign of weakness that meant a continued move higher would result in a loss of unrealized gains. You still could have walked away with a double on Tuesday (depending on the option), even though you gave back some gains.
Wednesday, it happens. The stock magically runs right back to $140. Right to the same entry/exit price level. This is where you can take the second trade, and get it at a much better price than we did on last Friday. In essence, knowing the bigger technical pattern, we would be selling the rip as it re-tests old support. Thursday brings about a lack of conviction, but even though the stock tries to rally, it mysteriously falls short at its new resistance, and during the day tests a substantial lower range.
Today, the stock is down another 7%.
I have read multiple comments, e-mails, and was even stopped by a few people in Vegas about this very topic, when to take profits. There is no right or wrong way to trade, as the market always changes, and you need to change and adapt along with it. I will say that knowing the anatomy of these trades, what we've discussed here today is an appropriate strategy to use until the market starts to trend.
