Walk the sidewalk and roll the street! ETF trading reduces the surprises associated with trading individual stocks: analyst downgrades/upgrades, profit warnings, corporate scandals, S&P downgrades/upgrades. The list goes on and on. Every trader reading this can tell me about the trade that was setting up perfectly only to get smoked by some unexpected news or catastrophic event. I haven't traded an individual stock in 6 months and my profits are skyrocketing, even in this choppy market. Thanks deronwagner. Keep the charts and the commentary coming.
Why actively trade ETFs?
- Thread starter deronwagner
- Start date
<b>ETFs - Analysis of UTH</b>
As part of our continuing weekly analysis of various ETFs, we chose UTH (Utilities Index HOLDRS Trust) for analysis this week. Since we cover a different ETF nearly every week, you can view the Archives section of our web site to read about ETFs previously discussed. The purpose of our weekly analysis is to enable you to understand the underlying components that comprise each ETF, as well as the bearing each respective stock has on the associated ETF. We are currently analyzing the HOLDRS series of ETFs, but will soon be looking at other types of ETFs such as SPDRS, iShares, and the new "Fighters" fixed-income securities.
UTH is the ticker symbol for the Utilities Index HOLDRS Trust and is one of seventeen different HOLDRS issued by Merrill Lynch. The average daily volume of UTH is 200k shares, though it has been steadily increasing during the past several months as ETF awareness grows. This makes it difficult to trade on an intraday basis due to the wide spreads. However, UTH is great for taking a multi-day "swing" trade because our profit targets and stop losses are larger, making a precise entry price less significant. Also keep in mind that, unlike an individual stock, the price of UTH cannot be easily manipulated by the specialist because the price of UTH must closely follow the price of each underlying component, otherwise arbitrage opportunities exist.
HOLDRS is an acronym that stands for HOLding Company Depositary ReceiptS (pronounced "holders"). These securities represent ownership in the common stock or American Depositary Receipts (ADRs) of specified companies in a particular industry, sector or group. A complete list of HOLDRS can be found by going to the HOLDRS web site.
UTH is comprised of individual stocks within the Utility sector, primarily regional power providers and a few energy traders. If you want to invest in companies that are in the Utilities index, buying UTH represents a much lower risk trade than buying individual stocks within the sector (just think Enron). The UTH index is comprised of 20 different stocks within the Utilities sector. The broad-based index we watch to follow the sector is the Dow Jones Utility Average ($DJU).
Here is detailed look at the composition of UTH. A complete explanation of how to interpret this data is listed below the chart:
Company and Ticker: Pretty self-explanatory. This represents the name of the company and associated ticker symbol for each individual stock that comprises UTH.
Shares: This is the quantity of shares of each individual stock that comprise one round-lot order of UTH. A round-lot order is always equal to exactly 100 shares, which is the minimum quantity of shares of any HOLDRS that can be purchased. For example, the total of 273.78 shares of stock that you see listed above equals the exact number of shares that you receive by buying 100 shares of UTH. By purchasing 100 shares of UTH, you are buying 29 shares of The Southern Company (SO), 30 shares of Duke Energy (DUK), and the specified number of shares in each of the other 18 stocks that comprise UTH. By owning UTH, you also will receive dividends, when issued, from any associated stocks. Furthermore, HOLDRS can actually be converted to the underlying quantity of stocks by requesting your broker to do so.
Price: Simply the last price of each stock, based on the closing prices of Monday, November 11.
Market value: This is found by multiplying the number of shares of each stock times the last closing price. The sum of the portfolio's market value will always equal the current price of 100 shares of UTH. As of today's close, the sum of the market value was $5,885.74. Taking that number and dividing by 100 shares equals the current price of one share of UTH. Here is how we derive the price of UTH: $5,886 (market value) / 100 (one round lot of shares) = $58.86 per share of UTH. Notice that the closing price of UTH today (November 11) was $59.00, which represents a 14 cent premium to the actual value of the components. Sometimes there are arbitrage opportunities in instances when the value of the ETF strays too far away from the value of the underlying securities.
Percent Weight: Represents the current percentage of the entire portfolio that is represented by that one stock. This percentage will constantly be changing as the market value of each individual stock changes. However, the number of shares of each stock does not change. For example, if Dominion (D) had a really strong up day but the rest of the Utilities stocks did not rally much, it would result in an increase in the percentage weighting of Dominion within the portfolio. It's also interesting to see the effect of stocks that used to have a higher market cap and have since become deflated. In the case of DYN, it was a $30 stock less than a year ago, but has since dropped to under $1. This explains the almost non-existent 0.16% weighting within the index.
One strategy we have found to be effective is to set up a group of quotes with your data provider that lists each stock within UTH. As you are trading UTH, you will find that watching the performance of the individual stocks enables you to get a better idea of the relative strength or weakness of UTH, especially when the price of one of the stocks in UTH is being heavily affected by news.
By calculating the exact price of the underlying components of the ETF, it enables you to know a fair price to bid for buying UTH if the spread is large. Based on the most recent closing price, any price below $58.86 would represent a discount to the current price on UTH, while any price above that level would indicate a premium to the underlying components. Stay tuned for the pending release of our spreadsheet that will automatically calculate real-time "fair market values" of each of the HOLDRS we trade.
Below is a screenshot of a market minder that we have set up to follow UTH. Notice how we have the stocks sorted by percentage change so that we can quickly see who the best and worst performers are within UTH. We can then compare their performance with their percentage weighting to predict short-term price movement of UTH in relation to the DJ Utility Index ($DJU):
It is helpful to have printed copies of the underlying components and a market minder following each sector because it enables you to analyze the importance of price divergence of particular stocks throughout the day. Once you begin to memorize the individual components and weightings of each stock, you will find significant improvements in your profitability. Look for analysis of a different ETF next week.
For those of you that have been asking me more about my style, feel free to browse the Archives section of our website to read many educational articles and daily reports.
As part of our continuing weekly analysis of various ETFs, we chose UTH (Utilities Index HOLDRS Trust) for analysis this week. Since we cover a different ETF nearly every week, you can view the Archives section of our web site to read about ETFs previously discussed. The purpose of our weekly analysis is to enable you to understand the underlying components that comprise each ETF, as well as the bearing each respective stock has on the associated ETF. We are currently analyzing the HOLDRS series of ETFs, but will soon be looking at other types of ETFs such as SPDRS, iShares, and the new "Fighters" fixed-income securities.
UTH is the ticker symbol for the Utilities Index HOLDRS Trust and is one of seventeen different HOLDRS issued by Merrill Lynch. The average daily volume of UTH is 200k shares, though it has been steadily increasing during the past several months as ETF awareness grows. This makes it difficult to trade on an intraday basis due to the wide spreads. However, UTH is great for taking a multi-day "swing" trade because our profit targets and stop losses are larger, making a precise entry price less significant. Also keep in mind that, unlike an individual stock, the price of UTH cannot be easily manipulated by the specialist because the price of UTH must closely follow the price of each underlying component, otherwise arbitrage opportunities exist.
HOLDRS is an acronym that stands for HOLding Company Depositary ReceiptS (pronounced "holders"). These securities represent ownership in the common stock or American Depositary Receipts (ADRs) of specified companies in a particular industry, sector or group. A complete list of HOLDRS can be found by going to the HOLDRS web site.
UTH is comprised of individual stocks within the Utility sector, primarily regional power providers and a few energy traders. If you want to invest in companies that are in the Utilities index, buying UTH represents a much lower risk trade than buying individual stocks within the sector (just think Enron). The UTH index is comprised of 20 different stocks within the Utilities sector. The broad-based index we watch to follow the sector is the Dow Jones Utility Average ($DJU).
Here is detailed look at the composition of UTH. A complete explanation of how to interpret this data is listed below the chart:
Company and Ticker: Pretty self-explanatory. This represents the name of the company and associated ticker symbol for each individual stock that comprises UTH.
Shares: This is the quantity of shares of each individual stock that comprise one round-lot order of UTH. A round-lot order is always equal to exactly 100 shares, which is the minimum quantity of shares of any HOLDRS that can be purchased. For example, the total of 273.78 shares of stock that you see listed above equals the exact number of shares that you receive by buying 100 shares of UTH. By purchasing 100 shares of UTH, you are buying 29 shares of The Southern Company (SO), 30 shares of Duke Energy (DUK), and the specified number of shares in each of the other 18 stocks that comprise UTH. By owning UTH, you also will receive dividends, when issued, from any associated stocks. Furthermore, HOLDRS can actually be converted to the underlying quantity of stocks by requesting your broker to do so.
Price: Simply the last price of each stock, based on the closing prices of Monday, November 11.
Market value: This is found by multiplying the number of shares of each stock times the last closing price. The sum of the portfolio's market value will always equal the current price of 100 shares of UTH. As of today's close, the sum of the market value was $5,885.74. Taking that number and dividing by 100 shares equals the current price of one share of UTH. Here is how we derive the price of UTH: $5,886 (market value) / 100 (one round lot of shares) = $58.86 per share of UTH. Notice that the closing price of UTH today (November 11) was $59.00, which represents a 14 cent premium to the actual value of the components. Sometimes there are arbitrage opportunities in instances when the value of the ETF strays too far away from the value of the underlying securities.
Percent Weight: Represents the current percentage of the entire portfolio that is represented by that one stock. This percentage will constantly be changing as the market value of each individual stock changes. However, the number of shares of each stock does not change. For example, if Dominion (D) had a really strong up day but the rest of the Utilities stocks did not rally much, it would result in an increase in the percentage weighting of Dominion within the portfolio. It's also interesting to see the effect of stocks that used to have a higher market cap and have since become deflated. In the case of DYN, it was a $30 stock less than a year ago, but has since dropped to under $1. This explains the almost non-existent 0.16% weighting within the index.
One strategy we have found to be effective is to set up a group of quotes with your data provider that lists each stock within UTH. As you are trading UTH, you will find that watching the performance of the individual stocks enables you to get a better idea of the relative strength or weakness of UTH, especially when the price of one of the stocks in UTH is being heavily affected by news.
By calculating the exact price of the underlying components of the ETF, it enables you to know a fair price to bid for buying UTH if the spread is large. Based on the most recent closing price, any price below $58.86 would represent a discount to the current price on UTH, while any price above that level would indicate a premium to the underlying components. Stay tuned for the pending release of our spreadsheet that will automatically calculate real-time "fair market values" of each of the HOLDRS we trade.
Below is a screenshot of a market minder that we have set up to follow UTH. Notice how we have the stocks sorted by percentage change so that we can quickly see who the best and worst performers are within UTH. We can then compare their performance with their percentage weighting to predict short-term price movement of UTH in relation to the DJ Utility Index ($DJU):
It is helpful to have printed copies of the underlying components and a market minder following each sector because it enables you to analyze the importance of price divergence of particular stocks throughout the day. Once you begin to memorize the individual components and weightings of each stock, you will find significant improvements in your profitability. Look for analysis of a different ETF next week.
For those of you that have been asking me more about my style, feel free to browse the Archives section of our website to read many educational articles and daily reports.
maglia rosa
Guest
Deron,
I think you are doing an excellent job with your high-quality posts and and appreciate your analyses of the various listed ETFs.
One remark I'd like to make though:
When calculating the value of one ETF share, you neglect to add the dividends that have accumulated in the trust and that will be distributed to the ETF holders at some later point.
So when you say there might be an 'arb', it might not be real because there is a certain cash plug to be added to the basket's value (which you depict nicely with your Excel excerpts).
The real value of the ETF is the 'Sumproduct' of share quantities and last prices of all component stocks (i.e. one basket), plus the accrued dividends that the trust has accumulated.
Now I know for example that BBH has no such cash plug, because none of the component stocks pay any dividends, but I'm pretty certain that there is one in UTH, with all those utility stocks.
Just wanted to note that the real value of an ETF share is not just the basket value, so when you just look at the basket's value and neglect the dividend, you don't always have the exact fair value, and a possible premium or discount is not a real one.
I think you are doing an excellent job with your high-quality posts and and appreciate your analyses of the various listed ETFs.
One remark I'd like to make though:
When calculating the value of one ETF share, you neglect to add the dividends that have accumulated in the trust and that will be distributed to the ETF holders at some later point.
So when you say there might be an 'arb', it might not be real because there is a certain cash plug to be added to the basket's value (which you depict nicely with your Excel excerpts).
The real value of the ETF is the 'Sumproduct' of share quantities and last prices of all component stocks (i.e. one basket), plus the accrued dividends that the trust has accumulated.
Now I know for example that BBH has no such cash plug, because none of the component stocks pay any dividends, but I'm pretty certain that there is one in UTH, with all those utility stocks.
Just wanted to note that the real value of an ETF share is not just the basket value, so when you just look at the basket's value and neglect the dividend, you don't always have the exact fair value, and a possible premium or discount is not a real one.
Deronwagner-
Nice to see some quality info being disseminated here again. You may or may not be plugging a service, but I don't care. I am enjoying your insights and this is the first post I have read all the way through in a long time. Keep it up.
-Jim
Nice to see some quality info being disseminated here again. You may or may not be plugging a service, but I don't care. I am enjoying your insights and this is the first post I have read all the way through in a long time. Keep it up.
-Jim
Thanks. Glad you like the information and are finding it helpful. I'll try to keep this thread up to date with the latest info. on ETFs as new ones are released (and there are a few new ones I'll be writing about soon).
Since some of you were asking to see a sample copy of our daily ETF newsletter, I am posting today's issue as a freebie to the ET community. Hopefully you will get some good ideas from it. Our subscribers also receive intraday email updates on ETFs.
The Wagner Daily
November 14, 2002
--------------------------------------------------------------------------------
Commentary:
Wow! Talk about a roller coaster ride! Yesterday began with a small gap down in the S&P, a selloff to break the lows of the week, a sudden news-driven reversal that tested the previous day's HIGHS, a selloff back down to test the morning lows, and a rally into the final hour that caused the S&P index to close nearly flat from the previous day's close. The Nasdaq followed suit, but was once again stronger than the S&P index during the whole day. This was evidenced by the fact that the Nasdaq broke the previous day's highs during the rally when the S&P only tested it. In addition, the Nasdaq did not sell off all the way back down to the morning lows, and it also recovered at a better percentage into the close which allowed the Nasdaq to close with a decent gain on the day.
Looking at a 15 minute chart of SPY yesterday, notice how the 20 and 40-period moving averages kept crossing each other in a sideways motion. This confirmed the lack of direction. While there are other indicators that traders can use for trading in these kinds of conditions, we prefer to keep it simple by aggressively participating in the trending days and keeping it light on range-bound days:
As we discussed in Wednesday's morning report, the major market indices were already poised to open in "no-man's land" yesterday, which prepared us for whippy price action. When you combine Greenspan's speech to the Joint House Committee with the Iraq news that was unexpectedly released (allowing UN weapons inspectors into the country again), it really threw the market for a loop as traders participated in a tug-of-war and tried to figure out whether the market should go higher or lower on that news.
After getting stopped out of our DIA short on the sharp morning reversal, we decided the most profitable thing to do was nothing unless the S&P broke the previous day's highs or set a new intraday low, neither of which happened. On days like yesterday, we prefer to let other traders fight it out and we'll take a spectator's seat ringside because it's much safer than actually being in the ring (especially for a tall skinny guy like me). However, once the winner is established, we will more aggressively go along for the ride in whichever direction the market goes.
The good news is that volume was decent yesterday and has been steadily increasing for the past three days, especially in the Nasdaq. This should aid in some type of trend becoming established soon, though the major market indices appear as if they could once again chop around in a sideways range today. Since the Nasdaq has been showing relative strength the past couple of days, we'll continue to keep an eye on QQQ to the upside, especially if it breaks the high of the week around 25.50. On the downside, the Dow and S&P have been among the weakest indices, so we'll be watching SPY and DIA for breaks of their respective lows of the week.
Regardless of what happens today, it is important to realize that the market is at a very critical point here on the daily charts. Although still basing at support, the indices are very close to breaking support of the uptrend that has been intact since October 10. A break of yesterday's lows is likely to spur some pretty sharp selling momentum that would probably take the major indices down to their 50-day moving averages. However, a rally during the next couple days is likely to give hope to traders that the "mini-bull market" is still in effect. One final scenario is to remember that sideways consolidation near the highs is known as a correction by time (rather than price) and is also bullish. So, let's be careful here until the market figures out its next move.
--------------------------------------------------------------------------------
Today's watch list:
OIH - Oil Service Index HOLDRS
Long
Trigger = 53.15 (above yesterday afternoon's price resistance)
Target = 54.43 (just below the upper channel resistance of the trendline from the high of Nov. 7; also the 20-MA on 60 min. chart)
Stop = 52.50 (below yesterday's close)
Notes = This play was initially pointed out to us by one of our subscribers who participated in our 1-on-1 Private Trader Coaching program last month. After he e-mailed us the idea last night, we studied the charts and agreed that it is a good potential trade. Whether the trade works out or not, kudos to Steve for doing his homework and applying what he has learned!
If it wasn't for the Iraq news that caused a knee-jerk selloff reaction to oil stocks, this index probably would have reversed yesterday after coming down to the lower channel support of the uptrend from the low of October 10. However, despite the fact that tensions over Iraq are perceived to be easing, this index is due for a technical bounce. It has bounced off of support of its 50-day MA and is now on support of its 20-week MA. In addition, we like the high "capitulation" volume yesterday which often signals a temporary end to a selloff. Finally, we liked the reversal attempt into the final hour of trading, which often signals what is to come the next morning. We will look to buy on a confirmation of the reversal, which is not to be confused with "bottom-fishing."
--------------------------------------------------------------------------------
BBH - Biotechnology Index HOLDRS
Short
Trigger = HALF at 84.45, HALF at 84.20 (below the low price support of the past MONTH)
Target = 82.30 (next major price support on the daily chart; will probably probe just below the 50-day MA)
Stop = 85.50 (above resistance of yesterday's close)
Notes = The Biotech Index ($BTK.X) is on the verge of losing support on the daily chart, and BBH will go along with it. Yesterday, BBH probed just below the price support of 84.50, but recovered. We're thinking that the next test will result in a breakdown of support because that price level has been tested about five times within the past month and broad market conditions are now technically getting worse too.
If you have never traded this ETF before, be aware that it is volatile and often has big spreads. As such, simply adjust your position size appropriately to manage risk. We are also legging into the position as noted above.
--------------------------------------------------------------------------------
Daily Reality Report:
Our only trade yesterday was the DIA short which triggered and looked good early in the morning. However, we quickly got stopped out when the news of Iraq's acceptance of weapons inspection was released. Fortunately, we had a physical stop in place which enabled us to cover very close to our stop price of 84.10. Because the move was so fast, we would have undoubtedly received a worse fill if we manually were trying to cover the short.
"Swing" trades (per The Wagner Daily)
Closed Positions:
DIA long -
shorted 83.47, stopped out 84.11, points = (0.64), net P/L = ($120)
Open Positions:
(none)
Intraday trades (per Intraday Updates E-mail Service)
(none)
--------------------------------------------------------------------------------
Glossary and Notes:
Remember that opening gaps that cause stocks to trigger immediately on the open carry a higher degree of risk because the gaps (both up and down) often do not hold. Use caution if trading stocks with large opening gaps.
Trigger = Exact price that stock must trade through before I will enter the trade. If a long position, I will only enter the stock if it trades at the trigger price or higher. For a short position, I will only enter the stock if it trades at the trigger price or lower. It is really important to only enter the position if the trigger price is hit, otherwise the trade becomes riskier.
Target = The anticipated price I am expecting the stock to go to. However, this does not mean that I will always hold the stock to that price. If conditions warrant, I will sometimes take profits before that price, in which case I will notify you of the change.
Stop = The price at which I will have a physical stop market order set. As a position becomes profitable, this stop price will often be adjusted to lock in profits. Again, you will always be notified of such changes in the next daily report or intraday if you subscribe to intraday updates.
SOH = Sit On Hands (Don't Make Trades)
Closed P&L under Deron's Report Card is based on the actual price I closed my trade at, not just the theoretical target or stop price listed for each stock. Open P&L is based on the closing prices of the most recent trading day.
Unless otherwise noted, average holding time is 2 days to 2 weeks once a position is triggered. Updates on open positions are provided daily and via intraday update email alerts.
The Wagner Daily
November 14, 2002
--------------------------------------------------------------------------------
Commentary:
Wow! Talk about a roller coaster ride! Yesterday began with a small gap down in the S&P, a selloff to break the lows of the week, a sudden news-driven reversal that tested the previous day's HIGHS, a selloff back down to test the morning lows, and a rally into the final hour that caused the S&P index to close nearly flat from the previous day's close. The Nasdaq followed suit, but was once again stronger than the S&P index during the whole day. This was evidenced by the fact that the Nasdaq broke the previous day's highs during the rally when the S&P only tested it. In addition, the Nasdaq did not sell off all the way back down to the morning lows, and it also recovered at a better percentage into the close which allowed the Nasdaq to close with a decent gain on the day.
Looking at a 15 minute chart of SPY yesterday, notice how the 20 and 40-period moving averages kept crossing each other in a sideways motion. This confirmed the lack of direction. While there are other indicators that traders can use for trading in these kinds of conditions, we prefer to keep it simple by aggressively participating in the trending days and keeping it light on range-bound days:
As we discussed in Wednesday's morning report, the major market indices were already poised to open in "no-man's land" yesterday, which prepared us for whippy price action. When you combine Greenspan's speech to the Joint House Committee with the Iraq news that was unexpectedly released (allowing UN weapons inspectors into the country again), it really threw the market for a loop as traders participated in a tug-of-war and tried to figure out whether the market should go higher or lower on that news.
After getting stopped out of our DIA short on the sharp morning reversal, we decided the most profitable thing to do was nothing unless the S&P broke the previous day's highs or set a new intraday low, neither of which happened. On days like yesterday, we prefer to let other traders fight it out and we'll take a spectator's seat ringside because it's much safer than actually being in the ring (especially for a tall skinny guy like me). However, once the winner is established, we will more aggressively go along for the ride in whichever direction the market goes.
The good news is that volume was decent yesterday and has been steadily increasing for the past three days, especially in the Nasdaq. This should aid in some type of trend becoming established soon, though the major market indices appear as if they could once again chop around in a sideways range today. Since the Nasdaq has been showing relative strength the past couple of days, we'll continue to keep an eye on QQQ to the upside, especially if it breaks the high of the week around 25.50. On the downside, the Dow and S&P have been among the weakest indices, so we'll be watching SPY and DIA for breaks of their respective lows of the week.
Regardless of what happens today, it is important to realize that the market is at a very critical point here on the daily charts. Although still basing at support, the indices are very close to breaking support of the uptrend that has been intact since October 10. A break of yesterday's lows is likely to spur some pretty sharp selling momentum that would probably take the major indices down to their 50-day moving averages. However, a rally during the next couple days is likely to give hope to traders that the "mini-bull market" is still in effect. One final scenario is to remember that sideways consolidation near the highs is known as a correction by time (rather than price) and is also bullish. So, let's be careful here until the market figures out its next move.
--------------------------------------------------------------------------------
Today's watch list:
OIH - Oil Service Index HOLDRS
Long
Trigger = 53.15 (above yesterday afternoon's price resistance)
Target = 54.43 (just below the upper channel resistance of the trendline from the high of Nov. 7; also the 20-MA on 60 min. chart)
Stop = 52.50 (below yesterday's close)
Notes = This play was initially pointed out to us by one of our subscribers who participated in our 1-on-1 Private Trader Coaching program last month. After he e-mailed us the idea last night, we studied the charts and agreed that it is a good potential trade. Whether the trade works out or not, kudos to Steve for doing his homework and applying what he has learned!
If it wasn't for the Iraq news that caused a knee-jerk selloff reaction to oil stocks, this index probably would have reversed yesterday after coming down to the lower channel support of the uptrend from the low of October 10. However, despite the fact that tensions over Iraq are perceived to be easing, this index is due for a technical bounce. It has bounced off of support of its 50-day MA and is now on support of its 20-week MA. In addition, we like the high "capitulation" volume yesterday which often signals a temporary end to a selloff. Finally, we liked the reversal attempt into the final hour of trading, which often signals what is to come the next morning. We will look to buy on a confirmation of the reversal, which is not to be confused with "bottom-fishing."
--------------------------------------------------------------------------------
BBH - Biotechnology Index HOLDRS
Short
Trigger = HALF at 84.45, HALF at 84.20 (below the low price support of the past MONTH)
Target = 82.30 (next major price support on the daily chart; will probably probe just below the 50-day MA)
Stop = 85.50 (above resistance of yesterday's close)
Notes = The Biotech Index ($BTK.X) is on the verge of losing support on the daily chart, and BBH will go along with it. Yesterday, BBH probed just below the price support of 84.50, but recovered. We're thinking that the next test will result in a breakdown of support because that price level has been tested about five times within the past month and broad market conditions are now technically getting worse too.
If you have never traded this ETF before, be aware that it is volatile and often has big spreads. As such, simply adjust your position size appropriately to manage risk. We are also legging into the position as noted above.
--------------------------------------------------------------------------------
Daily Reality Report:
Our only trade yesterday was the DIA short which triggered and looked good early in the morning. However, we quickly got stopped out when the news of Iraq's acceptance of weapons inspection was released. Fortunately, we had a physical stop in place which enabled us to cover very close to our stop price of 84.10. Because the move was so fast, we would have undoubtedly received a worse fill if we manually were trying to cover the short.
"Swing" trades (per The Wagner Daily)
Closed Positions:
DIA long -
shorted 83.47, stopped out 84.11, points = (0.64), net P/L = ($120)
Open Positions:
(none)
Intraday trades (per Intraday Updates E-mail Service)
(none)
--------------------------------------------------------------------------------
Glossary and Notes:
Remember that opening gaps that cause stocks to trigger immediately on the open carry a higher degree of risk because the gaps (both up and down) often do not hold. Use caution if trading stocks with large opening gaps.
Trigger = Exact price that stock must trade through before I will enter the trade. If a long position, I will only enter the stock if it trades at the trigger price or higher. For a short position, I will only enter the stock if it trades at the trigger price or lower. It is really important to only enter the position if the trigger price is hit, otherwise the trade becomes riskier.
Target = The anticipated price I am expecting the stock to go to. However, this does not mean that I will always hold the stock to that price. If conditions warrant, I will sometimes take profits before that price, in which case I will notify you of the change.
Stop = The price at which I will have a physical stop market order set. As a position becomes profitable, this stop price will often be adjusted to lock in profits. Again, you will always be notified of such changes in the next daily report or intraday if you subscribe to intraday updates.
SOH = Sit On Hands (Don't Make Trades)
Closed P&L under Deron's Report Card is based on the actual price I closed my trade at, not just the theoretical target or stop price listed for each stock. Open P&L is based on the closing prices of the most recent trading day.
Unless otherwise noted, average holding time is 2 days to 2 weeks once a position is triggered. Updates on open positions are provided daily and via intraday update email alerts.
OIH hit our price target and we just sold half the position at 54.45. We will trail a stop on the rest.
BBH never triggered.
BBH never triggered.
After selling the first half of OIH at 54.45, we bought back in on the pullback to support at 54.05. We just sold half of the position again at 54.70 and are planning on taking the remaining shares of overnight with a 75 cent trailing stop intraday.
nice work deron