Trade Ideas for 9/3/08

For the third session in a row, stocks on the trade ideas list opened on a gap up, this time with a couple that gapped right over the buy price, only to be faded with a vengeance after 15 minutes. Gustav spared the U.S. coast but wreaked havoc on its financial markets as commodities sold off over the weekend, and a mad rush out of basic materials and into other types of equities ensued. This proved short-lived, and many traders were double-whipsawed in a short span of time. Make no mistake, today's market was unusual, and I think, significant. TK of TradingWithTK, a 35-year veteran of the markets, called it "some of the strangest action I have seen." Consider yourself lucky if you got out with minimal losses. Perhaps only the most prudent (the ones in cash and the ones who don't buy in the first 45 minutes) and the nimblest (the ones who fade gaps) finished today unscathed or even turned a profit. I myself ate it to the tune of 4%, a month's worth of gains in a strong market; but that was my fault for putting too many eggs in one basket—your results should not be that bad! In the last hour, the markets showed strength, and the Russell managed to end up just about even on the day. I'm still leaning bullish, but this market has proven to be unpredictable, and so the right thing to do is to reduce risk. An all-cash position doesn't seem like such a bad idea right now. The next safest stance would be to wait for the major indices to break a significant level of support or resistance and then act on that.

Of today's ideas, LVLT and LYV gapped up and ran to the buy price, whereas UWM and NDAQ gapped right over the buy prices. Consequently, all of these should have been purchased with reduced risk, if at all. Meanwhile PCU and EGO were stopped out, and unlike a lot of others in the commodity sector, they let us out at our sell-stop prices. In a bright spot, BPOP went and attained new heights today.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
BPOP	7.67	9.08	+18.3%	7.99	Consider booking some profit at the 200-day moving average around 9.71	Chart
LYV	16.63	16.03	-3.6%	15.19	Consider selling on a close < 15.89	Chart
LVLT	3.54	3.41	-4.0%	3.18	Consider selling on a close < 3.30	Chart
UWM	54.81	53.59	-2.2%	50.22	Consider selling at market on a close < 52.38	Chart
NDAQ	33.23	33.21	0.0%	30.99	Consider selling on a close < 32.21	Chart

As mentioned earlier, an all-cash position is a great way to play this market! Failing that, the only course I can recommend is to play the positions we have and wait for the market to make an up or down move before taking on new ones. When the markets are this interesting, it's very difficult to make money. The main thing is to keep a level head, and not try to make up today's losses right away. Sometimes after a crazy day like today, the markets will start to trend once again. It is key to recognize the setups, and to do that requires a clear head, not one still reeling from losses or hell-bent on revenge.

Trade Ideas for 9/3/08

Ticker	Entry	Exit A	Exit C	Chart
SDS (UltraShort S&P)	67.81	63.14		Chart
SSO (UltraLong S&P)	64.34	59.27		Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.